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PARADIGM HOLDINGS S-1/A Filing

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					                                 As filed with the Securities and Exchange Commission on October 7, 2005

                                                          Registration No. 333-122777

                                    UNITED STATES
                        SECURITIES AND EXCHANGE COMMISSION
                                                      WASHINGTON, D.C. 20549
                                                     AMENDMENT NO. 6 TO FORM S-1

                                                     REGISTRATION STATEMENT
                                                  UNDER THE SECURITIES ACT OF 1933

                                                       PARADIGM HOLDINGS, INC.
                                                   (Name of registrant as specified in its charter)
                       Wyoming                                         7373                                83-0211506
           (State or Other Jurisdiction                   (Primary Standard Industrial                 (I.R.S. Employer
         of Incorporation or Organization)                 Classification Code Number)                Identification No.)

                2600 Towers Oaks Boulevard                                                            Raymond A. Huger
                         Suite 500                                                               2600 Towers Oaks Boulevard
                 Rockville, Maryland 20852                                                                Suite 500
                      (301) 468-1200                                                              Rockville, Maryland 20852
               (Address and telephone number                                                           (301) 468-1200
              of principal executive offices)                                                   (Name, address, and telephone
                                                                                                  number of agent for service)
                                                                     Copies to:
                 Clayton E. Parker, Esq.                                                         Ronald S. Haligman, Esq.
         Kirkpatrick & Lockhart Nicholson Graham                                             Kirkpatrick & Lockhart Nicholson
                           LLP                                                                          Graham LLP
              201 South Biscayne Boulevard                                                     201 South Biscayne Boulevard
                       Suite 2000                                                                       Suite 2000
                  Miami, Florida 33131                                                             Miami, Florida 33131
                Telephone: (305) 539-3300                                                        Telephone: (305) 539-3300
               Telecopier: (305) 358-7095                                                       Telecopier: (305) 358-7095



Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after this registration statement
becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933 check the following box. |X|

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_|

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier of the effective registration statement for the offering. |_|

If this is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement for the same offering. |_|

If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. |_|
                                                CALCULATION OF REGISTRATION FEE
==============================================================================================================================
                                                                                              Proposed Maximum
                                                                            Proposed Maximum     Aggregate         Amount Of
             Title Of Each Class Of                     Amount To Be         Offering Price       Offering       Registration
            Securities To Be Registered                  Registered           Per Share(1)        Price(1)            Fee
------------------------------------------------------------------------------------------------------------------------------
Common stock, par value $0.01 per share               5,662,350 Shares            $3.25         $18,402,637.50   $2,165.99 (2)
------------------------------------------------------------------------------------------------------------------------------
TOTAL                                                 5,662,350 Shares            $3.25         $18,402,637.50   $2,165.99 (2)
==============================================================================================================================




(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(c) under the Securities Act of 1933, as amended.
For the purposes of this table, we have used the average of the closing bid and asked prices as of February 7, 2005.

(2) Registration fee of $2,165.91 was previously paid on February 7, 2005.

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.
                      PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED OCTOBER 7, 2005

                                                       PARADIGM HOLDINGS, INC.
                                                 5,662,350 SHARES OF COMMON STOCK

This Prospectus relates to the sale of up to 5,662,350 shares of Paradigm Holdings' common stock by certain persons who are stockholders of
Paradigm Holdings. The selling stockholders consist of:

o Raymond A. Huger, our Chairman of the Board of Directors and Chief Executive Officer, who intends to sell up to 962,500 shares of
common stock previously issued to him.

o Harry Kaneshiro, an Executive Vice President of Paradigm Solutions Corporation, our wholly-owned subsidiary, who intends to sell up to
962,500 shares of common stock previously issued to him.

o Samar Ghadry, former Senior Vice President of Paradigm Solutions Corporation, our wholly-owned subsidiary, who intends to sell up to
1,575,000 shares of common stock previously issued to her.

o J. Paul Consulting, Shortline Equity Partners, Inc. and Ultimate Investments Corp., which intend to sell up to 1,054,411 and 500,000 and
607,939 shares of common stock. All shares presently owned by these entities were fully paid for prior to the reverse merger in November
2004.

Please refer to "Selling Stockholders" beginning on page 13.

Paradigm Holdings is not selling any shares of common stock in this offering and therefore will not receive any proceeds from this offering. All
costs associated with this registration will be borne by us.

The shares of common stock are being offered for sale by the selling stockholders at prices established on the Over-the-Counter Bulletin Board
during the term of this offering. These prices will fluctuate based on the demand for the shares of common stock. On September 30th, 2005, the
last reported sales price of our common stock was $2.50 per share.

Brokers or dealers effecting transactions in these shares should confirm that the shares are registered under applicable state law or that an
exemption from registration is available.

Our common stock is quoted on the Over-the-Counter Bulletin Board under the symbol "PDHO."

These securities are speculative and involve a high degree of risk. Please refer to "Risk Factors" beginning on page 5.

No underwriter or person has been engaged to facilitate the sale of shares of common stock in this offering. This offering will terminate 24
months after the accompanying registration statement is declared effective by the Securities and Exchange Commission. None of the proceeds
from the sale of stock by the selling stockholder will be placed in escrow, trust or any similar account.

The Securities and Exchange Commission and state securities regulators have not approved or disapproved these securities, or determined if
this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The date of this Prospectus is __________, 2005
                                                        TABLE OF CONTENTS
          PROSPECTUS SUMMARY..................................................................................1
          THE OFFERING........................................................................................2
          SUMMARY CONSOLIDATED FINANCIAL INFORMATION..........................................................4
          SUPPLEMENTARY FINANCIAL INFORMATION.................................................................6
          RISK FACTORS........................................................................................7
          RISKS RELATED TO THIS OFFERING.....................................................................14
          FORWARD-LOOKING STATEMENTS.........................................................................15
          SELLING STOCKHOLDERS...............................................................................16
          USE OF PROCEEDS....................................................................................18
          PLAN OF DISTRIBUTION...............................................................................19
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.............20
          DESCRIPTION OF BUSINESS............................................................................29
          MANAGEMENT.........................................................................................42
          FISCAL YEAR END OPTIONS/SAR VALUES.................................................................46
          DESCRIPTION OF PROPERTY............................................................................49
          LEGAL PROCEEDINGS..................................................................................50
          PRINCIPAL SHAREHOLDERS.............................................................................51
          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.....................................................53
          MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND OTHER SHAREHOLDER MATTERS......54
          DESCRIPTION OF SECURITIES..........................................................................56
          EXPERTS............................................................................................57
          LEGAL MATTERS......................................................................................57
          AVAILABLE INFORMATION..............................................................................57
          FINANCIAL STATEMENTS................................................................................i
          PART II.............................................................................................1



Our audited financial statements for the fiscal year December 31, 2004 were contained in our Annual Report on Form 10-K.

                                                                     i
                                                          PROSPECTUS SUMMARY

The following Prospectus Summary contains the most material information on Paradigm Holdings, Inc. You should read the entire Prospectus
carefully, including "Risk Factors" and our Financial Statements and the notes to the Financial Statements before making any investment
decision.

                                                                OUR COMPANY

Paradigm Holdings Inc. ("PDHO") (website: www.paradigmsolutions.com) provides information technology and business continuity solutions
to government and commercial customers. Headquartered in Rockville, Maryland, the company was founded on the philosophy of high
standards of business performance, integrity, customer satisfaction, and employee morale. With an established core foundation of experienced
executives, the Company rapidly grew from six employees in 1996 to the current level of approximately 300 personnel. Revenues grew from
$51 million in 2003 to over $61 million by the end of 2004. During this period of growth, Paradigm remained centered on information
technology services and solutions.

Paradigm Holdings Inc. consists of two subsidiary companies: Paradigm Solutions Corporation (PSC), which was incorporated in 1996 to
deliver information technology Infrastructure Support Services, Software Engineering Support and Business Continuity Planning Services to
Federal Agencies, and Paradigm Solutions International (PSI), which was incorporated in 2004 to deliver Business Continuity Planning and
Emergency Management Services and software to commercial clients.

Paradigm Solutions Corporation provides support for mission-critical systems in key federal agencies such as the Departments of Justice,
Treasury and Homeland Security.

Paradigm Holdings formed the PSI subsidiary company to produce a fully-integrated solution for protecting businesses from "all hazard"
interruptions. A customized methodology was developed to provide clients with a comprehensive picture of the risks to their operations,
facilities and people. The software tool, OpsPlanner(TM) is one of the first tool sets to encompass continuity planning, emergency management
and automated notification in one easy-to-use platform. From inception, this platform was developed as an integrated application--unlike the
prevailing competitors which developed continuity planning, emergency management and automated notification as separate software modules.
This technology, when implemented with Paradigm's methods, offers a superior solution in the continuity of operations planning and risk
management area. The release of this Software tool was made in January of 2005 and no significant revenue was recognized in 2004.

Paradigm has achieved significant accomplishments including the launch of the Continuous Paradigm Process and Product Improvement
(CP(3)I), the continued evolution of Paradigm's ISO 9001:2000 Quality Management Office, the establishment of strategic Mentor Protege
relationships, and success in building a backlog of business over the last year. Additionally, Paradigm has won over 45% of its pursued
competitive procurements, greatly exceeding the industry standard win rate of 30% to 40%. The Company not only won new business with the
Department of Treasury in 2004, but it also won numerous recompetes of existing contracts including three with the Office of the Comptroller
of the Currency, four with the National Technical Information Service, and one with the Department of Housing and Urban Development.
Paradigm won several GWAC (Government Wide Acquisition Contracts) vehicles including the Department of Justice ITSS III and State of
Maryland MCS. The Company also successfully penetrated the DOD arena by gaining access to multiple GWACs such as DISA Encore, Army
MADD-1, Army CONUS Support Base Services (CSBS), and MATOC Naval Research Systems Integration.

The strength of our service offerings and information technology expertise has resulted in extensive government and commercial client
relationships, including the Departments of Treasury, Homeland Security, Justice, Commerce, Housing and Urban Development, the Small
Business Administration, IBM, Lockheed Martin, EDS, Aventis, and the World Bank.

On November 3, 2004, Paradigm Holdings Inc., entered into an Agreement and Plan of Reorganization with Paradigm Solutions Merger Corp.,
a Delaware corporation and wholly-owned subsidiary of Paradigm Holdings (the "Merger Sub"), Paradigm Solutions Corporation, a Maryland
corporation and the shareholders of Paradigm Solutions Corporation, pursuant to which Paradigm Holdings acquired a reporting shell pursuant
to a reverse merger. Pursuant to the Agreement and Plan of Reorganization, the Merger Sub was merged with and into Paradigm Solutions
Corporation, which at the time was a reporting shell and the surviving corporation and continues its existence under the laws of the State of
Maryland and is a wholly-owned subsidiary of Paradigm Holdings Inc. In consideration of the Merger, the Paradigm Solutions Corporation
shareholders exchanged 13,699 shares of common stock of Paradigm Solutions Corporation, which was 100% of the issued and outstanding
capital stock of Paradigm Solutions Corporation, for 17,500,000 shares of common stock of Paradigm Holdings Inc. Cheyenne Resources, Inc.
was incorporated under the laws of the State of Wyoming on November 17, 1970. According to the securities filings made by Cheyenne
Resources prior management, Cheyenne Resources, prior to the reverse merger with Paradigm Solutions Merger Sub operated principally in
one industry segment, the exploration for and sale of oil and gas.

Cheyenne Resources held oil, gas, interests, producing, and selling oil and gas and other mineral substances. Cheyenne Resources did not
engage in refining or retail marketing operations; rather its activities had been restricted to acquiring and disposing of mineral properties, and to
producing and selling oil and gas from its wells.

                                                                         1
Prior Principal activities of Cheyenne Resources involved buying leases, filing on federal and state open land leases as well as acquiring and
trading of oil, gas, and other mineral properties, primarily in the Rocky mountain area and Oklahoma.

Cheyenne Resources oil and gas activities included the acquisition of whole or partial interests in oil and gas leases and the farming out or
resale of all or part of its interests in these leases. In connection with farmouts and resales, Cheyenne Resources attempted to retain an
overriding royalty or a working or carried interest.

In 1999, Cheyenne Resources entered into a memorandum of understanding to obtain a 25% interest in Cayenne Records, Inc., which has a
75% interest in NL Records of Nashville, Tennessee. This transaction was rescinded in 2000 due to inability of seller to produce records and
data. No value was recorded in the financial statements. Cheyenne Resources issued 11,473,711 shares of common stock for this interest.

In 1999, Cheyenne Resources entered into an Agreement with Tiger Exploration to acquire the Dixie Gas Field and interests in the Stephens
and Lick Creeds Fields for 12,000,000 shares of common stock. Title and production data could not be verified or produced, and so no value of
assets could be carried.

In June 2000, Cheyenne Resources rescinded its memorandum of understanding with Cayenne Records, Inc. In June 2000, Cheyenne
Resources also rescinded its memorandums of understanding to acquire Dixie gas Field and Interest in Stephens and Lick Creek Fields. No
value was recorded in this financial statement for these acquisitions. Of the 23,473,711 shares issued for the above referenced transactions, all
but 2,623,838 shares were returned.

In January 2004, Skye Blue Ventures, an entity beneficially owned by Mr. Dennis Iler, purchased a controlling interest in Paradigm Holdings,
formerly Cheyenne Resources, Inc. Skye Blue Ventures purchased 2,350,000 shares of common stock of Cheyenne Resources, Inc. from the
former directors of Cheyenne Resources, Inc. for $75,000 and purchased 23,000,000 shares of common stock directly from Cheyenne
Resources, inc. for $50,000. Cheyenne Resources issued 21,300,000 shares out of the 23,000,000 as it only had 21,300,000 available under its
then-current authorized common stock. Mr. Iler, former President and a Director of Cheyenne Resources, Inc. and the then-beneficial owner of
Skye Blue Ventures, brought Cheyenne Resources current in its securities filings, settled its outstanding debt, and assisted in having the
company listed on the Over-the-Counter Bulletin Board. In August 2004, J. Paul Consulting, Shortline Equity Investments and Ultimate
Investments purchased Skye Blue Ventures' ownership interest in Cheyenne Resources, Inc. and subscribed for an aggregate of 10,000,000
shares of common stock of Cheyenne Resources, Inc. for $200,000.

                                                                   ABOUT US

Our principal place of business is located at 2600 Tower Oaks Boulevard, Suite 500, Rockville, Maryland 20852, and our telephone number at
that address is
(301) 468-1200.

                                                                        2
                                                               THE OFFERING

This offering relates to the sale of common stock by certain persons our stockholders. The selling stockholders consist of:

o Raymond A. Huger, our Chairman of the Board of Directors and Chief Executive Officer, who intends to sell up to 962,500 shares of
common stock previously issued to him.

o Harry Kaneshiro, an Executive Vice President of Paradigm Solutions Corporation, our wholly-owned subsidiary, who intends to sell up to
962,500 shares of common stock previously issued to him.

o Samar Ghadry, former Senior Vice President of Paradigm Solutions Corporation, our wholly-owned subsidiary, who intends to sell up to
1,575,000 shares of common stock previously issued to her.

o J. Paul Consulting, Shortline Equity Partners, Inc. and Ultimate Investments Corp., intend to sell up to 1,054,411, 500,000 and 607,939
shares of common stock. All shares presently owned by these entities were fully paid for prior to the reverse merger in November 2004.
 Common Stock Offered                                  5,662,350
 Offering Price                                        Market price
 Common Stock Outstanding Before The
 Offering(1)                                           20,003,368 shares
 Common Stock Outstanding After The
 Offering(2)                                           20,003,368
 Use Of Proceeds                                       We will not receive any of the proceeds from the sale of stock by the
                                                       selling stockholder. See "Use of Proceeds."
 Risk Factors                                          The securities offered hereby involve a high degree of risk
                                                       and immediate substantial dilution and should not be purchased by
                                                       investors who cannot afford the loss of their entire investment. See
                                                       "Risk Factors" and "Dilution."
 Dividend Policy                                       We do not intend to pay dividends on our common stock. We plan
                                                       to retain any earnings for use in the operation of our business and to
                                                       find future growth.



Over-The-Counter Bulletin Board Symbol PDHO

(1) Based on shares outstanding as of September 30, 2005.

(2) Assumes that all shares of common stock underlying options, which are offered under this Prospectus, are issued.

                                                                        3
                                     SUMMARY CONSOLIDATED FINANCIAL INFORMATION

The following is a summary of our Financial Statements, which are included elsewhere in this Prospectus. You should read the following data
together with the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section of this Prospectus as well
as with our Financial Statements, and the notes therewith. Effective November 5, 2004, we revoked our S-Corporation status and became a C
Corporation. After the revocation of the S election, we will be responsible for income taxes generated as a result of reporting taxable income.
The financial statements as of December 31, 2004, 2003, 2002, 2001 and 2000 include both our audited financial statements and pro-forma
adjustments to provide for an income tax provision (benefit) and a deferred income tax liability for each year presented as if we had been a C
Corporation during these periods of operation. We assumed an effective tax rate of 38.6% which reflects Federal taxes at 34% and state taxes,
net of the Federal benefit. There are no significant permanent differences in any of the periods presented.
                                               ***********************************RESTATED**********************************
                                                  FOR THE          FOR THE         FOR THE         FOR THE         FOR THE
                                                YEAR ENDED       YEAR ENDED      YEAR ENDED      YEAR ENDED      YEAR ENDED
                                               DECEMBER 31,     DECEMBER 31,    DECEMBER 31,    DECEMBER 31,    DECEMBER 31,
STATEMENT OF OPERATION DATA:                       2004             2003            2002            2001            2000
----------------------------                   ------------     ------------    ------------    ------------    ------------
Contract revenue
Service contracts                              $ 39,487,603       $ 36,091,375      $ 26,656,972      $ 16,102,170      $ 13,532,720
Repair and maintenance contracts                 22,268,698         15,114,617        11,016,120        11,085,549         2,822,388
                                               ------------       ------------      ------------      ------------      ------------
Total contract revenue                           61,756,301         51,205,992        37,673,092        27,187,719        16,355,108
                                               ------------       ------------      ------------      ------------      ------------
Cost of revenue
Service contracts                                33,950,665         32,675,562        23,023,558        13,797,834        11,582,421
Repair and maintenance contracts                 20,594,289         13,134,103         9,396,121         9,590,929         2,413,089
                                               ------------       ------------      ------------      ------------      ------------
Total cost of revenue                            54,544,954         45,809,665        32,419,679        23,388,763        13,995,510
                                               ------------       ------------      ------------      ------------      ------------
Gross margin                                        7,211,347         5,396,327         5,253,413          3,798,956         2,359,598
Selling, General & Administrative                 8,994,477          4,950,853         2,889,944         2,443,815         1,675,445
                                               ------------       ------------      ------------      ------------      ------------
Income (loss) from operations                    (1,783,130)            445,474          2,363,469         1,355,141           684,153
Total other (expense) income                        (49,391)            21,402            31,963            38,718            53,014
                                               ------------       ------------      ------------      ------------      ------------
Net income (loss) before income taxes            (1,832,521)            466,876         2,395,432          1,393,859           737,167
Income tax provision                              1,934,380             35,125             7,529             5,306             2,300
                                               ------------       ------------      ------------      ------------      ------------
Net income (loss)                              $ (3,766,901)      $    431,751      $ 2,387,903       $ 1,388,553       $    734,867
                                               ============       ============      ============      ============      ============
Basic and diluted net income (loss)
  per common share                             ($         0.21)   $         0.03    $        0.14     $        0.08     $         0.04
Weighted average common shares
  outstanding                                       17,896,709        17,500,000        17,500,000        17,500,000        17,500,000
Pro-forma income tax provision
  (benefit)                                        (707,353)           180,214           924,636           541,287           285,959
                                               ------------       ------------      ------------      ------------      ------------
Pro-forma net income (loss)                    $ (1,125,168)      $    286,662      $ 1,470,796       $    852,572      $    451,208
                                               ============       ============      ============      ============      ============
Pro-forma basic and diluted net
  income (loss) per common share               ($         0.06)   $         0.02    $         0.08    $         0.05    $         0.03
Pro-forma weighted average common
  shares outstanding                                17,896,709        17,500,000        17,500,000        17,500,000        17,500,000


                                                                        4
                                                December 31,     December 31,    December 31,    December 31,    December 31,
    BALANCE SHEET DATA:                             2004             2003            2002            2001            2000
                                                -----------------------------------------------------------------------------
    Current assets
      Cash                                      $      179,389    $       17,890   $     630,847    $      52,300    $      30,401
      Accounts receivable - contracts               11,478,901        14,494,968       8,511,109        6,343,525        3,385,008
      Inventory, net                                   616,020           540,005              --               --               --
      Current portion of notes
        receivable - stockholder                            --                --          20,861           19,453           18,141
      Prepaid expenses and other
        current assets                             4,329,660         2,238,405        1,383,962          737,153           80,547
                                                ------------      ------------     ------------     ------------     ------------
         Total current assets                     16,603,970        17,291,268       10,546,779        7,152,431        3,514,097
                                                ------------      ------------     ------------     ------------     ------------
         Total property and equipment              1,511,535         1,219,424          274,806          166,247          129,228
           Less: accumulated depreciation           (504,348)         (204,690)        (119,324)         (71,323)         (40,386)
                                                ------------      ------------     ------------     ------------     ------------

         Net property and equipment                 1,007,187         1,014,734         155,482            94,924           88,842
         Total other assets                           77,182            76,207           45,717           62,105           79,350
                                                ------------      ------------     ------------     ------------     ------------
         Total assets                           $ 17,688,339      $ 18,382,209     $ 10,747,978     $ 7,309,460      $ 3,682,289
                                                ============      ============     ============     ============     ============
    Current liabilities
      Bank overdraft                            $  1,046,160      $    695,980     $  1,331,365     $    418,223     $    449,316
      Note payable - line of credit                3,220,072         3,000,000          358,819          529,965          383,166
      Accounts payable                             5,476,967         4,514,721        2,550,592        2,518,155          548,539
      Deferred revenue                             1,749,410         2,328,690               --               --               --
      Accrued wages and payroll taxes              1,812,545         1,601,297          812,444          536,262          382,967
      Deferred income taxes                          527,000                --               --               --               --
                                                ------------      ------------     ------------     ------------     ------------
         Total current liabilities                13,832,154        12,140,688        5,053,220        4,002,605        1,763,988

    Long-term liabilities
        Deferred rent                                 144,435           115,012               --               --               --
        Deferred income tax, net current
        portion                                    1,356,000                --               --               --               --
                                                ------------      ------------     ------------     ------------     ------------

           Total liabilities                    $ 15,332,589      $ 12,255,700     $ 5,053,220      $ 4,002,605      $ 1,763,988
                                                ============      ============     ============     ============     ============

           Total stockholders' equity           $ 2,355,750       $ 6,126,509      $ 5,694,758      $ 3,306,855      $ 1,918,301
                                                ============      ============     ============     ============     ============

           Total liabilities and
             stockholders' equity               $ 17,688,339      $ 18,382,209     $ 10,747,978     $ 7,309,460      $ 3,682,289
                                                ============      ============     ============     ============     ============

    Pro-forma adjustment to add
      deferred income tax liability                       --      $ 2,591,353      $ 2,411,139      $ 1,489,408      $    953,836
                                                ============      ============     ============     ============     ============

    Pro-forma total liabilities(1)              $ 15,332,589      $ 14,847,053     $ 7,464,359      $ 5,492,013      $ 2,717,824
                                                ============      ============     ============     ============     ============

    Pro-forma adjustment to reduce
      retained earnings for effect of
      addition to deferred income tax
      liability                                 $         --      $ (2,591,353)    $ (2,411,139)    $ (1,489,408)    $ (953,836)
                                                ============      ============     ============     ============     ============

    Pro-forma total stockholders' equity(2)     $ 2,355,750       $ 3,535,156      $ 3,283,619      $ 1,817,447      $    964,465
                                                ============      ============     ============     ============     ============




(1) Proforma total liabilities includes an adjustment to account for deferred income taxes as if we had been a C Corporation since the beginning
of the periods presented. The deferred income tax liability results from timing differences between the book basis and the income tax basis of
the Company's assets and liabilities at each balance sheet date. The effective income tax rate was 38.6%, which included no significant
permanent differences.

(2) Proforma total stockholders' equity includes an adjustment to retained earnings to account for the effect of the change in the proforma
deferred income tax liability from the previous to the current period.

                                                                         5
                                              SUPPLEMENTARY FINANCIAL INFORMATION

The following tables present Paradigm Holdings, Inc. and Subsidiaries condensed operating results for quarters ending June 30, 2005 and
March 31, 2005 and each of the eight fiscal quarters between the periods ended December 31, 2004 and 2003. The information for each of
these quarters is unaudited. In the opinion of management, all necessary adjustments, which consist only of normal and recurring accruals, have
been included to fairly present the unaudited quarterly results. This data should be read together with Paradigm Holdings, Inc. and Subsidiaries
consolidated financial statements and the notes thereto, the Independent Auditors Report and Management's Discussions and Analysis of
Financial Condition and Results of Operations.

Effective November 5, 2004, we revoked our S-Corporation status and became a C Corporation. After the revocation of the election, we will be
responsible for income taxes generated as a result of reporting taxable income. The pro-forma adjustments provide for an income tax provision
(benefit) for each period presented as if we had been a C Corporation during these periods of operation. We assumed an effective tax rate of
38.6% which reflects federal taxes of 34% and state taxes, net of the federal benefit. There are no significant permanent differences in any of
the periods presented.

                               THREE MONTHS ENDED (IN THOUSANDS, EXCEPT PER SHARE DATA)
                             RESTATED       RESTATED
                              JUN 30,        MAR 31,        DEC 31,            SEP 30,             JUN 30,            MAR 31,          DEC 31,
                               2005           2005           2004               2004                2004               2004             2003
                           ------------   ------------   ------------       ------------        ------------       ------------     ------------
  Current revenue          $     15,630   $     15,046   $     15,780       $     16,593        $     15,272       $     14,111     $     14,037
  Net income (loss)
     before income
     taxes                         428            259            (1,311)              (230)              (143)              (149)
  (60)
  Income tax                       130            101             1,904                 26                 0                  4
  25
     provision (benefit)
  Net income (loss)        $       298    $       158    $       (3,215)    $         (256)     $        (143)     $        (153)   $        (85)
  Basic and diluted
     net income (loss)
     per common share      $       .01    $       .01    $         (.17)    $         (.02)     $        (.01)     $        (.01)   $      (.01)
  Weighted average
     common shares
     outstanding                20,003         20,003            19,078              17,500          17,500               17,500         17,500
  Pro-forma income
    tax provision
    (benefit)                      130            101              (524)                (73)             (55)               (56)            (28)
  Pro-forma net
    income (loss)                  298            158              (787)              (157)              (88)               (93)             (32)

  Pro-forma basic and
    diluted net
    income (loss) per
    common share                   .01            .01              (.04)              (.01)                --                 --              --
  Pro-forma weighted
    average common
    shares outstanding          20,003          20,003           19,078              17,500           17,500              17,500         17,500


                                                                 SEP 30,            JUN 30,              MAR 31,
                                                                  2003               2003                 2003
                                                             ------------        ------------          ------------
                                Current revenue              $     12,282        $     14,287        $      10,600
                                Net income (loss)
                                  before income
                                  taxes                               (175)                    752                 (50)
                                Income tax                              (2)                      0                  12
                                  provision (benefit)
                                Net income (loss)            $        (173)      $             752   $            (62)
                                Basic and diluted
                                  net income (loss)
                                  per common share           $        (.01)      $             .04   $              --
                                Weighted average
                                  common shares
                                  outstanding                       17,500               17,500                 17,500
                                Pro-forma income
                                  tax provision
                                  (benefit)                               (69)                 290                (12)
                                Pro-forma net
                                  income (loss)                       (106)                    462                 (38)
                                Pro-forma basic and
                                  diluted net
                                  income (loss) per
                                  common share                        (.01)                    .03                  --
                                Pro-forma weighted
                                  average common
                                  shares outstanding                17,500               17,500                 17,500


                                                                            6
                                                                RISK FACTORS

This risk factor section discusses all material risks to the potential investor. As part of your evaluation of us, you should take into account not
solely our business approach and strategy, but also the special risks we face in our business. Because our business is substantially dependent
upon contracts with the U.S. federal government, we are subject to a number of risks that arise from the way in which the U.S. federal
government conducts business. For example, as a government contractor, our operations are subject to shifts in government spending priorities.
Our business is also subject to complex government procurement laws and regulations and may be adversely affected by government imposed
contract provisions that are more favorable to the government than those in normal commercial contracts. Also, our operations are subject to
government audits.

For more information about these and other risks, see "Risk Related to Our Business". You should carefully consider all of the risk factors
together with all of the other information included in this prospectus when making a decision to invest in our Company. If any of these risks or
uncertainties actually occurs, our business, financial condition or operating results could be materially harmed. In that case, the trading price of
our common stock could decline and you could lose all or part of your investment.

                                                    RISKS RELATED TO OUR BUSINESS

We May Need To Raise Additional Capital To Finance Operations

We have relied on significant external financing to fund our operations. As of June 30, 2005 and June 30, 2004, we had $130,782 and
$165,958, respectively, in cash and our total current assets were $15.0 million and $14.2 million, respectively. As of December 31, 2004 and
December 31, 2003, we had $179,389 and $17,890, respectively, in cash and our total current assets were $16,603,970 and $17,291,268,
respectively. We will need to raise additional capital to fund our anticipated operating expenses and future expansion. Among other things,
external financing may be required to cover our operating costs. If we do not maintain profitable operations, it is unlikely that we will be able
to secure additional financing from external sources. The sale of our common stock to raise capital may cause dilution to our existing
shareholders. Any of these events would be materially harmful to our business and may result in a lower stock price. Our inability to obtain
adequate financing may result in the need to curtail business operations and you could lose your entire investment. Our financial statements do
not include any adjustments that might result from the outcome of this uncertainty.

Our Common Stock May Be Affected By Limited Trading Volume And May Fluctuate Significantly

Our common stock is traded on the Over-the-Counter Bulletin Board. Prior to this offering, there has been a limited public market for our
common stock and there can be no assurance that an active trading market for our common stock will develop. As a result, this could adversely
affect our shareholders' ability to sell our common stock in short time periods, or possibly at all. Our common stock is thinly traded compared
to larger, more widely known companies in the information technology services industry. Thinly traded common stock can be more volatile
than common stock traded in an active public market. The average daily trading volume of our common stock in January 2005 was 1,000
shares per day. Our common stock has experienced, and is likely to experience in the future, significant price and volume fluctuations, which
could adversely affect the market price of our common stock without regard to our operating performance. In addition, we believe that factors
such as quarterly fluctuations in our financial results and changes in the overall economy or the condition of the financial markets could cause
the price of our common stock to fluctuate substantially.

All Of Our Revenues Would Be Substantially Threatened If Our Relationships With Agencies Of The Federal Government Were Harmed

Our largest clients, Department of Treasury and Department of Justice, are agencies of the federal government. If the federal government in
general, or any significant government agency, uses less of our services or terminates its relationship with us, our revenues could decline
substantially. We could be forced to curtail or cease our business operations. During the year ended December 31, 2004, contracts with the
federal government accounted for approximately 99% of our revenues. During that same period, our five largest clients, all agencies of the
federal government, generated approximately 93% of our revenues. We believe that federal government contracts are likely to continue to
account for a significant portion of our revenues for the foreseeable future. The volume of work that we perform for a specific client, however,
is likely to vary from year to year, and a significant client in one year may not use our services as extensively, or at all, in a subsequent year.

We May Encounter Risk in Maintaining Our Current U.S. Small Business Administration (SBA) 8(a) Revenue in the Future

As of October 2004, Paradigm Solutions Corporation began competing solely in the open marketplace for federal business. Due to our
graduation from the Small Business Administration 8(a) Business Development Program, we are no longer classified as a small disadvantaged
business by the federal government. Accordingly, we will no longer have access to contract vehicles set aside for 8(a) businesses. The backlog
of federal business under this program will continue until the contracts end, after which we will pursue several avenues to maintain the business
we believe is important to our strategy in this marketplace. This includes either migrating this work to other government contract vehicles, if
allowed by the customer, or taking on a subcontract role when the business comes up for re-compete and teaming with a SBA business who

                                                                         7
would be the prime contractor. During the year ended December 2004, 55% of our revenue from federal government contracts was SBA 8(a)
business. SBA 8(a) contracts which provide 32%, 43% and 25% of our current SBA 8(a) revenues will come up for renewal in 2005, 2006 and
2007, respectively. Failure to migrate the 8(a) backlog business to other government contract vehicles or take a subcontractor role when the
business comes up for re-compete could significantly impact our future revenue.

The Calculation of Our Backlog is Subject to Numerous Uncertainties, And We May Not Receive the Full amounts of Revenue Estimated
Under the Contracts included in Our backlog, Which Could Reduce Our Revenue in Future Periods.

Backlog is our estimate of the amount of revenue we expect to realize over the remaining life of the signed contracts and task orders we have in
hand as of the measurement date. Our total backlog consists of funded and unfunded backlog. In the case of government contracts, we define
funded backlog as estimated future revenues under government contracts and task orders for which funding has been appropriated by Congress
and authorized for expenditure by the applicable agency under our contracts. Unfunded backlog is the difference between total backlog and
funded backlog. Our total backlog does not include estimates of backlog from GWAC or GSA schedules beyond signed, funded task orders,
but does include estimated backlog beyond signed, funded task orders for other types of ID/IQ contracts. Backlog also includes an estimate of
future revenues we expect to realize from commercial contracts.

The calculation of backlog is highly subjective and is subject to numerous uncertainties and estimates, and there can be no assurance that we
will in fact receive the amounts we have included in our backlog. Our assessment of a contract's potential value is based upon factors such as
historical trends, competition and budget availability. In the case of contracts which may be renewed at the option of the applicable agency, we
generally calculate backlog by assuming that the agency will exercise all of its renewal options; however, the applicable agency may elect not
to exercise its renewal options. In addition, federal contracts typically are only partially funded at any point during their term, and all or some
of the work to be performed under a contract may remain unfunded unless and until Congress makes subsequent appropriations and the
procuring agency allocates funding to the contact. Our estimate of the portion of backlog from which we expect to recognize revenues in fiscal
2005 or any future period is likely to be inaccurate because the receipt and timing of any of these revenues is dependent upon subsequent
appropriation and allocation of funding and is subject to various contingencies, such as timing of task orders, many of which are beyond our
control. In addition, we may never receive revenues from some of the engagements that are included in our backlog and this risk is greater with
respect to unfunded backlog. The actual receipt of revenues on engagements included in backlog may never occur or may change because a
program schedule could change, the program could be canceled, the governmental agency could elect not to exercise renewal options under a
contract or could select other contractors to perform services, or a contract could be reduced, modified or terminated. Additionally, the
maximum contract value specified under a government contract or task order awarded to us is not necessarily indicative of the revenues that we
will realize under that contract. We also derive revenues from ID/IQ contracts, which typically do not require the government to purchase a
specific amount of goods or services under the contract other than a minimum quantity which is generally very small. If we fail to realize
revenue included in our backlog, our revenues and operating results for the then current fiscal year as well as future reporting periods may be
materially harmed.

Our Government Contracts May Be Terminated Or Adversely Modified Prior To Completion, Which Could Adversely Affect Our Business

We derive substantially all of our revenues from government contracts that typically are awarded through competitive processes and span a one
year base period and one or more option years. The unexpected termination or non-renewal of one or more of our significant contracts could
result in significant revenue shortfalls. Our clients generally have the right not to exercise the option periods. In addition, our contracts typically
contain provisions permitting an agency to terminate the contract on short notice, with or without cause. Following termination, if the client
requires further services of the type provided in the contract, there is frequently a competitive re-bidding process. We may not win any
particular re-bid or be able to successfully bid on new contracts to replace those that have been terminated. Even if we do win the re-bid, we
may experience revenue shortfalls in periods where we anticipated revenues from the contract rather than its termination and subsequent
re-bidding. These revenue shortfalls could harm operating results for those periods and have a material adverse effect on our business,
prospects, financial condition and results of operations.

We May have Difficulty Identifying and Executing Future Acquisitions on Favorable Terms, Which May Adversely Affect Our Results of
Operations and Stock Price.

We cannot assure you that we will be able to identify and execute acquisitions in the future on terms that are favorable to us, or at all. One of
our key growth strategies will be to selectively pursue acquisitions. Through acquisitions, we plan to expand our base of federal government
and commercial clients, increase the range of solutions we offer to our clients and deepen our penetration of existing clients. Without
acquisitions, we may not grow as rapidly as the market expects, which could cause our actual results to differ materially from those anticipated.
We may encounter other risks in executing our acquisition strategy, including:

o increased competition for acquisitions which may increase the price of our acquisitions;

                                                                          8
o our failure to discover material liabilities during the due diligence process, including the failure of prior owners of any acquired businesses or
their employees to comply with applicable laws, such as the Federal Acquisition Regulation and health, safety, employment and environmental
laws, or their failure to fulfill their contractual obligations to the Federal Government or other clients; and

o acquisition financing may not be available on reasonable terms, or at all.

In connection with any future acquisitions, we may decide to consolidate the operations of any acquired business with our existing operations
or to make other changes with respect to the acquired business, which could result in special charges or other expenses. Our results of
operations also may be adversely affected by expenses we incur in making acquisitions and, in the event that any goodwill resulting from
present or future acquisitions is found to be impaired, by goodwill impairment charges.

In addition, our ability to make future acquisitions may require us to obtain additional financing and we may be materially adversely affected if
we cannot obtain additional financing for any future acquisitions. To the extent that we seek to acquire other businesses in exchange for our
common stock, fluctuations in our stock price could have a material adverse effect on our ability to complete acquisitions and the issuance of
common stock to acquire other businesses could be dilutive to our stockholders. To the extent that we use borrowings to acquire other
businesses, our debt service obligations could increase substantially and relevant debt instruments may, among other things, impose additional
restrictions on our operations, require us to comply with additional financial covenants or require us to pledge additional assets to secure our
borrowings.

Any future acquisitions we make could disrupt our business and seriously harm our financial condition. We intend to consider investments in
complementary companies, products and technologies. While we have no current agreements to do so, we anticipate buying businesses,
products and/or technologies in the future in order to fully implement our business strategy. In the event of any future acquisitions, we may:

o issue stock that would dilute our current stockholders' percentage ownership;

o incur debt;

o assume liabilities;

o incur amortization expenses related to goodwill and other intangible assets; or

o incur large and immediate write-offs.

The use of debt or leverage to finance our future acquisitions should allow us to make acquisitions with an amount of cash in excess of what
may be currently available to us. If we use debt to leverage up our assets, we may not be able to meet our debt obligations if our internal
projections are incorrect or if there is a market downturn. This may result in a default and the loss in foreclosure proceedings of the acquired
business or the possible bankruptcy of our business.

Our operation of any acquired business will also involve numerous risks, including:

o integration of the operations of the acquired business and its technologies or products;

o unanticipated costs;

o diversion of management's attention from our core business;

o adverse effects on existing business relationships with suppliers and customers;

o risks associated with entering markets in which we have limited prior experience; and

o potential loss of key employees, particularly those of the purchased organizations.

The success of our acquisition strategy will depend upon our ability to successfully integrate any businesses we may acquire in the future. The
integration of these businesses into our operations may result in unforeseen events or operating difficulties, absorb significant management
attention and require significant financial resources that would otherwise be available for the ongoing development of our business. These
integration difficulties could include the integration of personnel with disparate business backgrounds, the transition to new information
systems, coordination of geographically dispersed organizations, loss of key employees of acquired companies and reconciliation of different
corporate cultures. For these or other reasons, we may be unable to retain key clients or to retain or renew contracts of acquired companies.
Moreover, any acquired business may fail to generate the revenue or net income we expected or produce the efficiencies or cost-savings that
we anticipated. Any of these outcomes could materially adversely affect our operating results.

                                                                         9
Failing To Maintain Strong Relationships With Prime Contractors Could Result In A Decline In Our Revenues

We derived approximately 5% of our revenues during the twelve months ended December 31, 2004 through our subcontractor relationships
with prime contractors, which, in turn, hold the prime contract with end-clients. We project that over the next few years the percentage of
subcontractor revenue will increase significantly. If any of these prime contractors eliminate or reduce their engagements with us, or have their
engagements eliminated or reduced by their end-clients, we will lose this source of revenues, which, if not replaced, could force us to curtail
our business operations.

Our Relatively Fixed Operating Expenses Expose Us To Greater Risk Of Incurring Losses

We incur costs based on our expectations of future revenues. Our operating expenses are relatively fixed and cannot be reduced on short notice
to compensate for unanticipated variations in the number or size of engagements in progress. These factors make it difficult for us to predict
our revenues and operating results. If we fail to predict our revenues accurately, it may seriously harm our financial condition and we could be
forced to curtail or cease our business operations.

A Reduction In Or The Termination Of Our Services Could Lead To Underutilization Of Our Employees And Could Harm Our Operating
Results

Our employee compensation expenses are relatively fixed. Therefore, if a client defers, modifies or cancels an engagement or chooses not to
retain us for additional phases of a project, our operating results will be harmed unless we can rapidly redeploy our employees to other
engagements in order to minimize underutilization. If we fail to redeploy our employees, we could be forced to curtail or cease our business
operations.

If We Experience Difficulties Collecting Receivables It Could Cause Our Actual Results To Differ Materially From Those Anticipated

65% of our total assets are in the form of accounts receivable, thus, we depend on the collection of our receivables to generate cash flow,
provide working capital, pay debt and continue our business operations. If the federal government, any of our other clients or any prime
contractor for whom we are a subcontractor fails to pay or delays the payment of their outstanding invoices for any reason, our business and
financial condition may be materially adversely affected. The government may fail to pay outstanding invoices for a number of reasons,
including lack of appropriated funds or lack of an approved budget.

We Must Recruit And Retain Qualified Professionals To Succeed In Our Labor

Intensive Business

Our future success depends in large part on our ability to recruit and retain qualified professionals skilled in complex information technology
services and solutions. Such personnel as Java developers and other hard-to-find information technology professionals are in great demand and
are likely to remain a limited resource in the foreseeable future. Competition for qualified professionals is intense. Any inability to recruit and
retain a sufficient number of these professionals could hinder the growth of our business. The future success of Paradigm Holdings will depend
on our ability to attract, train, retain and motivate direct sales, customer support and highly skilled management and technical employees. We
may not be able to successfully expand our direct sales force, which would limit our ability to expand our customer base. Further, we may not
be able to hire highly trained consultants and support engineers which would make it difficult to meet our clients' demands. If we cannot
successfully identify and integrate new employees into our business, we will not be able to manage our growth effectively and we could be
forced to curtail our business operations.

Because a significant component of our growth strategy relates to increasing our revenue from sales of our services and software, our growth
strategy will be adversely affected if we are unable to develop and maintain an effective sales force to market our services to our federal and
commercial customers. A key component of our growth strategy is the recruitment of additional sales executives. Our effort to build an
effective sales force may not be successful and, therefore, we could be forced to curtail our business operations.

We May Lose Money Or Generate Less Than Anticipated Profits If We Do Not Accurately Estimate The Cost Of An Engagement Which Is
Conducted On A Fixed-Price Basis

We perform a significant portion of our engagements on a fixed-price basis. We derived 52% of our total revenue in fiscal year 2004 and 57%
of our total revenue in fiscal year 2003 from fixed-price contracts. Fixed-price contracts require us to price our contracts by predicting our
expenditures in advance. In addition, some of our engagements obligate us to provide ongoing maintenance and other supporting or ancillary
services on a fixed-price basis or with limitations on our ability to increase prices. Many of our engagements are also on a time-and-material
basis. While these types of contracts are generally subject to less uncertainty than fixed-price contracts, to the extent that our actual labor costs
are higher than the contract rates, our actual results could differ materially from those anticipated and we could be forced to curtail or cease our
business operations.

                                                                         10
When making proposals for engagements on a fixed-price basis, we rely on our estimates of costs and timing for completing the projects. These
estimates reflect our best judgment regarding our capability to complete the task efficiently. Any increased or unexpected costs or unanticipated
delays in connection with the performance of fixed-price contracts, including delays caused by factors outside our control, could make these
contracts less profitable or unprofitable. From time to time, unexpected costs and unanticipated delays have caused us to incur losses on
fixed-price contracts, primarily in connection with state government clients. On rare occasions, these losses have been significant. In the event
that we encounter such problems in the future, our actual results could differ materially from those anticipated.

We Could Lose Revenues And Clients And Expose Our Company To Liability If We Fail To Meet Client Expectations

We create, implement and maintain technology solutions that are often critical to our clients' operations. If our technology solutions or other
applications have significant defects or errors or fail to meet our clients' expectations, we may:

o Lose revenues due to adverse client reaction;

o Be required to provide additional remediation services to a client at no charge;

o Receive negative publicity, which could damage our reputation and adversely affect our ability to attract or retain clients; or

o Suffer claims for substantial damages against us, regardless of our responsibility for the failure.

While many of our contracts limit our liability for damages that may arise from negligent acts, errors, mistakes or omissions in rendering
services to our clients, we cannot be sure that these contractual provisions will protect us from liability for damages if we are sued.
Furthermore, our general liability insurance coverage may not continue to be available on reasonable terms or in sufficient amounts to cover
one or more large claims or the insurer may disclaim coverage as to any future claim. The successful assertion of any large claim against us
could force us to curtail or cease our business operations. Even if not successful, such claims could result in significant legal and other costs
and may be a distraction to management.

Security Breaches In Sensitive Government Systems Could Result In The Loss Of Clients And Negative Publicity

Some of the systems we develop involve managing and protecting information involved in sensitive government functions. A security breach in
one of these systems could cause serious harm to our business, could result in negative publicity and could prevent us from having further
access to such critically sensitive systems or other similarly sensitive areas for other government clients, which could force us to curtail or
cease our business operations. Losses that we could incur from such a security breach could exceed the policy limits that we are currently
putting in place under the "errors and omissions" liability insurance.

If We Cannot Obtain The Necessary Security Clearances, We May Not Be Able To Perform Classified Work For The Government And We
Could Be Forced to Curtail or Cease Our Business Operations

Government contracts require us, and some of our employees, to maintain security clearances. If we lose or are unable to obtain security
clearances, the client can terminate the contract or decide not to renew it upon its expiration. As a result, to the extent we cannot obtain the
required security clearances for our employees working on a particular engagement, we may not derive the revenue anticipated from the
engagement, which, if not replaced with revenue from other engagements, could force us to curtail or cease our business operations.

We Depend On Our Senior Management Team, And The Loss Of Any Member May Adversely Affect Our Ability To Obtain And Maintain
Clients

We believe that our success depends on the continued employment of our senior management team. We have key executive life insurance
policies for each member of the team for up to $1 million. This includes Raymond Huger, Chairman & CEO and Frank Jakovac, President &
COO. Their employment is particularly important to our business because personal relationships are a critical element of obtaining and
maintaining client engagements. If one or more members of our senior management team were unable or unwilling to continue in their present
positions, such persons would be difficult to replace and our business could be seriously harmed. Furthermore, clients or other companies
seeking to develop in-house capabilities may attempt to hire some of our key employees. Employee defections to clients or competitors would
not only result in the loss of key employees but could also result in the loss of a client relationship or a new business opportunity. Any losses of
client relationships could seriously harm our business and force us to curtail or cease our business operations.

Richard Sawchak was hired as Vice President and Chief Financial Officer effective September 19, 2005. Mr. Sawchak replaces Mark Serway,
who resigned effective August 15, 2005.

                                                                         11
Audits Of Our Government Contracts May Result In A Reduction In The Revenue We Receive From Those Contracts Or May Result In Civil
Or Criminal Penalties That Could Harm Our Reputation

Federal government agencies routinely audit government contracts. These agencies review a contractor's performance on its contract, pricing
practices, cost structure and compliance with applicable laws, regulations and standards. An audit could result in a substantial adjustment to our
revenues because any costs found to be improperly allocated to a specific contract will not be reimbursed, while improper costs already
reimbursed must be refunded. If a government audit uncovers improper or illegal activities, we may be subject to civil and criminal penalties
and administrative sanctions, including termination of contracts, forfeiture of profits, suspension of payments, fines and suspension or
debarment from doing business with federal government agencies. In addition, if allegations of impropriety were made against us we could be
forced to curtail or cease our business operations.

We May Be Liable For Penalties Under A Variety Of Procurement Rules And Regulations, And Changes In Government Regulations Could
Slow Our Growth Or Reduce Our Profitability

We must comply with and are affected by federal government regulations relating to the formation, administration and performance of
government contracts. These regulations affect how we do business with our clients and may impose added costs on our business. Any failure
to comply with applicable laws and regulations could result in contract termination, price or fee reductions or suspension or debarment from
contracting with the federal government, which could force us to curtail or cease our business operations. Further, the federal government may
reform its procurement practices or adopt new contracting methods relating to the GSA Schedule or other government-wide contract vehicles.
If we are unable to successfully adapt to those changes, our business could be seriously harmed.

Our Failure To Adequately Protect Our Confidential Information And Proprietary Rights May Harm Our Competitive Position And Force Us
To Curtail or Cease Our Business Operations

While our employees execute confidentiality agreements, we cannot guarantee that this will be adequate to deter misappropriation of our
confidential information. In addition, we may not be able to detect unauthorized use of our intellectual property in order to take appropriate
steps to enforce our rights. If third parties infringe or misappropriate our copyrights, trademarks or other proprietary information, our
competitive position could be seriously harmed, which could force us to curtail or cease our business operations. In addition, other parties may
assert infringement claims against us or claim that we have violated their intellectual property rights. Such claims, even if not true, could result
in significant legal and other costs and may be a distraction to management.

Risks Related To The Information Technology Solutions And Services Market Competition Could Result In Price Reductions, Reduced
Profitability And Loss Of Market Share

Competition in the federal marketplace for information technology solutions and services is intense. If we are unable to differentiate our
offerings from those of our competitors, our revenue growth and operating margins may decline, which could force us to curtail or cease our
business operations. Many of our competitors are larger and have greater financial, technical, marketing and public relations resources, larger
client bases and greater brand or name recognition than Paradigm. Our larger competitors may be able to provide clients with additional
benefits, including reduced prices. We may be unable to offer prices at those reduced rates, which may cause us to lose business and market
share. Alternatively, we could decide to offer the lower prices, which could harm our profitability. If we fail to compete successfully, our
business could be seriously harmed, which could force us to curtail or cease our business operations.

Our current competitors include, and may in the future include, information technology services providers and large government contractors
such as QSS Group, Pragmatics, Computer & Hi-Tech Management, Inc., Booz-Allen & Hamilton, Computer Sciences Corporation, RSIS,
SRA, ATS, Electronic Data Systems, PEC Solutions, Science Applications International Corporation, and Lockheed Martin.

Current and potential competitors also have established or may establish cooperative relationships among themselves or with third parties to
increase their ability to address client needs. Accordingly, it is possible that new competitors or alliances among competitors may emerge and
rapidly acquire significant market share. In addition, some of our competitors may develop services that are superior to, or have greater market
acceptance than, the services that we offer.

If A Viable Market For Government Information Technology Services Is Not Sustained, We Could Be Forced to Curtail Or Cease Our
Business Operations

We cannot be certain that a viable government market for technology services will be sustainable. If this market is not sustained and we are
unable to refocus our services on the private sector or other in-demand technologies, our growth would be negatively affected.

Although government agencies have recently increased focus on and funding for technology initiatives, we cannot be certain that these
initiatives will continue in the future. Budget cutbacks or political changes could result in a change of focus or reductions in funding for
technology initiatives, which could force us to curtail or cease our business operations.

                                                                         12
Risks Related To The Ownership Of Our Common Stock, Quarterly Revenues And Operating Results Could Be Volatile And May Cause Our
Stock Price To Fluctuate

The rate at which the federal government procures technology may be negatively affected following changes in Presidential administrations
and in senior government officials. As a result, our operating results could be volatile and difficult to predict, and period-to-period comparisons
of our operating results may not be a good indication of our future performance.

A significant portion of our operating expenses, such as personnel and facilities costs, are fixed in the short term. Therefore, any failure to
generate revenues according to our expectations in a particular quarter could result in reduced income in the quarter. In addition, our quarterly
operating results may not meet the expectations of securities analysts or investors, which in turn may have an adverse affect on the market price
of our common stock.

Our Common Stock Is Deemed To Be "Penny Stock," Which May Make It More Difficult For Investors To Sell Their Shares Due To
Suitability Requirements

Our common stock is deemed to be "penny stock" as that term is defined in Rule 3a51-1 promulgated under the Securities Exchange Act of
1934. Penny stocks are stock:

o With a price of less than $5.00 per share;

o That are not traded on a "recognized" national exchange;

o Whose prices are not quoted on the NASDAQ automated quotation system (NASDAQ listed stock must still have a price of not less than
$5.00 per share); or

o In issuers with net tangible assets less than $2.0 million (if the issuer has been in continuous operation for at least three years) or $5.0 million
(if in continuous operation for less than three years), or with average revenues of less than $6.0 million for the last three years.

Broker/dealers dealing in penny stocks are required to provide potential investors with a document disclosing the risks of penny stocks.
Moreover, broker/dealers are required to determine whether an investment in a penny stock is a suitable investment for a prospective investor.
These requirements may reduce the potential market for our common stock by reducing the number of potential investors. This may make it
more difficult for investors in our common stock to sell shares to third parties or to otherwise dispose of them. This could cause our stock price
to decline.

Investors Should Not Rely On An Investment In Our Stock For The Payment Of Cash Dividends

We have not paid any cash dividends on our capital stock and we do not anticipate paying cash dividends in the future. Investors should not
make an investment in our common stock if they require dividend income. Any return on an investment in our common stock will be as a result
of any appreciation, if any, in our stock price.

Substantially All Of Our Assets Are Pledged to Secure Certain Debt Obligations, Which We Could Fail To Repay

Pursuant to our Loan and Security Agreement, dated July 28, 2005, with Chevy Chase Bank, we were required to secure our repayment
obligations with a first priority lien on substantially all of the assets of Paradigm, excluding intellectual property and real estate. Under the
Loan and Security Agreement, our line of credit is due on demand and interest is payable monthly depending on our leverage ratio at the
LIBOR rate plus the applicable spread which ranges from 2.25% and 3.00%. In the event we are unable to timely repay any amounts owed
under the Loan and Security Agreement, we could lose substantially all of our assets and be forced to curtail or cease our business operations.
In addition, because our debt obligations with Chevy Chase Bank are secured with a first priority lien, it may make it more difficult for us to
obtain additional debt financing from another lender, or obtain new debt financing on terms favorable to us, because such new lender may have
to be willing to be subordinate to Chevy Chase Bank.

                                                                          13
                                                  RISKS RELATED TO THIS OFFERING

Future Sales By Our Stockholders May Adversely Affect Our Stock Price And Our Ability To Raise Funds In New Stock Offerings

Sales of our common stock in the public market following this offering could lower the market price of our common stock. Sales may also
make it more difficult for us to sell equity securities or equity-related securities in the future at a time and price that our management deems
acceptable or at all. Some of our shareholders, including officers and directors, are the holders of "restricted securities". These restricted
securities may be resold in the public market only if registered or pursuant to an exemption from registration. Some of these shares may be
resold under Rule 144. As of September 30, 2005, approximately 19,500,000 shares of our common stock are deemed restricted. Five million
six hundred sixty-two thousand three hundred fifty (5,662,350) of these shares of common stock may be immediately resold in the public
market upon effectiveness of the accompanying registration statement.

The Selling Stockholders Intend To Sell Their Shares Of Common Stock In The Market, Which Sales May Cause Our Stock Price To Decline

The selling stockholders intend to sell in the public market the shares of common stock being registered in this offering. That means that up to
5,662,350 shares of common stock, the number of shares being registered in this offering, or 28.3% of our issued and outstanding shares of
common stock as of August 16, 2005, may be sold. Such sales may cause our stock price to decline.

The Sale Of Material Amounts Of Common Stock Under The Accompanying Registration Statement Could Encourage Short Sales By Third
Parties

The significant downward pressure on our stock price caused by the sale of a significant number of shares registered in the accompanying
registration statement could cause our stock price to decline, thus allowing short sellers of our stock an opportunity to take advantage of any
decrease in the value of our stock. The presence of short sellers in our common stock may further depress the price of our common stock.

The Price You Pay In This Offering Will Fluctuate

The price in this offering will fluctuate based on the prevailing market price of the common stock on the Over-the-Counter Bulletin Board.
Accordingly, the price you pay in this offering may be higher or lower than the prices paid by other people participating in this offering.

                                                                        14
                                                   FORWARD-LOOKING STATEMENTS

Risks Associated With Forward-Looking Statements

This Prospectus contains certain forward-looking statements regarding management's plans and objectives for future operations including plans
and objectives relating to our planned marketing efforts and future economic performance. The forward-looking statements and associated risks
set forth in this Prospectus include or relate to, among other things, (a) our projected sales and profitability, (b) our growth strategies, (c)
anticipated trends in our industry, (d) our ability to obtain and retain sufficient capital for future operations, and (e) our anticipated needs for
working capital. These statements may be found under "Management's Discussion and Analysis or Plan of Operations" and "Business," as well
as in this Prospectus generally. Actual events or results may differ materially from those discussed in forward-looking statements as a result of
various factors, including, without limitation, the risks outlined under "Risk Factors" and matters described in this Prospectus generally. In light
of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this Prospectus will in fact occur.

The forward-looking statements herein are based on current expectations that involve a number of risks and uncertainties. Such
forward-looking statements are based on assumptions that there will be no material adverse competitive or technological change in conditions
in our business, that demand for our products will significantly increase, that our President and Chief Executive Officer will remain employed
as such, that our forecasts accurately anticipate market demand, and that there will be no material adverse change in our operations or business
or in governmental regulations affecting us or our manufacturers and/or suppliers. The foregoing assumptions are based on judgments with
respect to, among other things, future economic, competitive and market conditions, and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond our control. Accordingly, although we believe that the assumptions underlying
the forward-looking statements are reasonable, any such assumption could prove to be inaccurate and therefore there can be no assurance that
the results contemplated in forward-looking statements will be realized. In addition, as disclosed elsewhere in the "Risk Factors" section of this
prospectus, there are a number of other risks inherent in our business and operations which could cause our operating results to vary markedly
and adversely from prior results or the results contemplated by the forward-looking statements. Growth in absolute and relative amounts of cost
of goods sold and selling, general and administrative expenses or the occurrence of extraordinary events could cause actual results to vary
materially from the results contemplated by the forward-looking statements. Management decisions, including budgeting, are subjective in
many respects and periodic revisions must be made to reflect actual conditions and business developments, the impact of which may cause us
to alter marketing, capital investment and other expenditures, which may also materially adversely affect our results of operations. In light of
significant uncertainties inherent in the forward-looking information included in this prospectus, the inclusion of such information should not
be regarded as a representation by us or any other person that our objectives or plans will be achieved.

Some of the information in this prospectus contains forward-looking statements that involve substantial risks and uncertainties. Any statement
in this prospectus and in the documents incorporated by reference into this prospectus that is not a statement of an historical fact constitutes a
"forward-looking statement". Further, when we use the words "may", "expect", "anticipate", "plan", "believe", "seek", "estimate", "internal",
and similar words, we intend to identify statements and expressions that may be forward- looking statements. We believe it is important to
communicate certain of our expectations to our investors. Forward-looking statements are not guarantees of future performance. They involve
risks, uncertainties and assumptions that could cause our future results to differ materially from those expressed in any forward-looking
statements. Many factors are beyond our ability to control or predict. You are accordingly cautioned not to place undue reliance on such
forward-looking statements. Important factors that may cause our actual results to differ from such forward-looking statements include, but are
not limited to, the risk factors discussed below. Before you invest in our common stock, you should be aware that the occurrence of any of the
events described under "Risk Factors" below or elsewhere in this Prospectus could have a material adverse effect on our business, financial
condition and results of operation. In such a case, the trading price of our common stock could decline and you could lose all or part of your
investment.

Backlog is our estimate of the amount of future revenue we expect to realize over the remaining life of signed contracts and task orders we
have in hand as of the measurement date. All statements regarding the amount of our backlog are forward-looking statements and are subject to
the risks and uncertainties described above and elsewhere in this prospectus.

In addition, this prospectus contains forecasts and estimates regarding the information technology market and federal government's spending
and workforce and related matters, including estimates regarding projected growth in the federal government's information technology
spending, projected federal government appropriations for homeland security, intelligence, national defense and similar matters, the projected
increase in outsourcing by the federal government, the aging of the federal government's civilian workforce and employee turnover rates at
other companies in our industry. These forecasts and estimates have been derived from publicly available information, industry publications
and data compiled by independent market research firms. Although we believe this information is reliable, we have not independently verified
this information and we cannot assure you that it is accurate or that the forecasts will prove correct.

                                                                        15
                                                         SELLING STOCKHOLDERS

The following table presents information regarding the selling stockholders. A description of each selling shareholder's relationship to
Paradigm Holdings and how each selling shareholder acquired the shares to be sold in this offering is detailed in the information immediately
following this table.
                                                                   Percentage of                                     Percentage of
                                  Shares Beneficially            Outstanding Shares             Shares             Outstanding Shares
                                      Owned Before               Beneficially Owned        to be Sold in the       Beneficially Owned
  Selling Stockholder                   Offering                 Before Offering(1)            Offering              After Offering
  -------------------             -------------------            ------------------        -----------------       ------------------
  Raymond Huger                            12,775,000                        63.87%                  962,500                   54.89%
  Harry Kaneshiro                           3,150,000                        15.75%                  962,500                   11.14%
  Samar Ghadry                              1,575,000                         7.87%                1,575,000                        0%
  J. Paul Consulting                        1,054,411                         5.27%                1,054,411                        0%
  Shortline Equity Partners, Inc.             500,000                         2.49%                  500,000                        0%
  Ultimate Investments Corp.                  607,939                         3.03%                  607,939
                                                                                                ------------
            TOTAL                                                                                  5,662,350
                                                                                                 ============


* Less than 1%.
 (1) Applicable percentage of ownership is based on 20,003,368 shares of common stock outstanding as of September 30, 2005, together with
securities exercisable or convertible into shares of common stock within 60 days of September 30, 2005, for each stockholder. Beneficial
ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Shares of common stock subject to securities exercisable or convertible into shares of common stock that are
currently exercisable or exercisable within 60 days of September 30, 2005 are deemed to be beneficially owned by the person holding such
securities for the purpose of computing the percentage of ownership of such person, but are not treated as outstanding for the purpose of
computing the percentage ownership of any other person. Note that affiliates are subject to Rule 144 and Insider trading regulations -
percentage computation is for form purposes only.

The following information contains a description of each selling shareholder's relationship to Paradigm Holdings and how each selling
shareholder acquired the shares to be sold in this offering. None of the selling stockholders have held a position or office, or had any other
material relationship, with Paradigm Holdings, except as follows:

Raymond Huger, our Chairman of the Board of Directors and Chief Executive Officer, received his shares as a result of the tax free exchange
among Paradigm Holdings, Paradigm Solutions Merger Corp., Paradigm Solutions Corporation and the shareholders of Paradigm Solutions
Corporation on November 3, 2004.

Harry Kaneshiro, an Executive Vice President of Paradigm Solutions Corporation, our wholly-owned subsidiary, received his shares as a result
of the tax free exchange among Paradigm Holdings, Paradigm Solutions Merger Corp., Paradigm Solutions Corporation and the shareholders
of Paradigm Solutions Corporation on November 3, 2004.

Samar Ghadry, former Senior Vice President of Paradigm Solutions Corporation, our wholly-owned subsidiary, received her shares as a result
of the tax free exchange among Paradigm Holdings, Paradigm Solutions Merger Corp., Paradigm Solutions Corporation and the shareholders
of Paradigm Solutions Corporation on November 3, 2004.

J. Paul Consulting received its shares through private placement. All investment decisions of J. Paul Consulting are made by Jeff Ploen. On
August 27, 2004, J. Paul Consulting subscribed for 2,500,000 shares of common stock from Paradigm Holdings, formerly Cheyenne
Resources, Inc., in a private placement transaction for $50,000 or $0.02 per share. In addition, on August 27, 2004, J. Paul Consulting
purchased 2,500,000 shares of restricted common stock of Paradigm Holdings from Skye Blue Ventures for $50,000 or $0.02 per share. Skye
Blue Ventures had purchased a controlling interest in Cheyenne Resources, Inc., in January 2004, when Cheyenne Resources was delinquent in
its filing under the Securities Exchange Act of 1934 and had accumulated significant debt. Mr. Dennis Iler, former President and a Director of
Cheyenne Resources and the then-beneficial owner of Skye Blue Ventures, brought Cheyenne Resources current in its securities filings and
settled its outstanding debt. J. Paul Consulting, Shortline Equity partners, Inc. and Ultimate Investment Corporation purchased control of
Cheyenne Resources in August of 2004 with the intent to merge with an operating company. Mr. Jeff Ploen became the sole officer and
Director of Paradigm Holdings when J. Paul Consulting, Shortline Equity Partners, Inc. and Ultimate Investments purchased a controlling
interest in Paradigm Holdings in August 2004. On November 3, 2004, when Paradigm Holdings entered into an Agreement and Plan of
Reorganization with Paradigm Solutions Merger Corp., a Delaware corporation and wholly-owned subsidiary of Paradigm Holdings, Paradigm
Solutions Corporation, a Maryland corporation and the shareholders of Paradigm Solutions Corporation, Mr. Ploen resigned his position as an
officer and director of Paradigm Holdings.

                                                                        16
Shortline Equity Partners, Inc. and Ultimate Investments Corp. received its shares through private placement. All investment decisions of
Shortline Equity Partners, Inc. and Ultimate Investments Corp. are made by Lance Baller. On August 27, 2004, Shortline Equity Partners, Inc.
subscribed for 2,500,000 shares of common stock from Paradigm Holdings, formerly Cheyenne Resources, Inc, in a private placement
transaction for $50,000 or $0.02 per share. In August of 2004, Ultimate Investments Corp. purchased 5,000,000 shares of restricted common
stock of Paradigm Holdings from Skye Blue Ventures for $100,000 or $0.02 per share. In addition, on August 27, 2004, J. Paul Consulting
purchased 2,500,000 shares of restricted common stock of Paradigm Holdings from Skye Blue Ventures for $50,000 or $0.02 per share. Skye
Blue Ventures had purchased a controlling interest in Cheyenne Resources, Inc. in January 2004, when Cheyenne Resources, Inc. was
delinquent in its filings under the Securities Exchange Act of 1934 and had accumulated significant debt. Mr. Dennis Iler, former President and
a Director of Cheyenne Resources, Inc. and the then-beneficial owner of Skye Blue Ventures, brought Cheyenne Resources, Inc. current in its
securities filings and settled its outstanding debt. J. Paul Consulting, Shortline Equity Partners, Inc. and Ultimate Investment Corporation
purchased control of Cheyenne Resources, Inc. in August of 2004 with the intent to merge with an operating company.

                                                                      17
                                                            USE OF PROCEEDS

This Prospectus relates to shares of our common stock that may be offered and sold from time to time by certain persons, who are, or will
become, shareholders of Paradigm Holdings. There will be no proceeds to us from the sale of shares of common stock in this offering.

                                                                      18
                                                            PLAN OF DISTRIBUTION

The selling stockholders have advised us that the sale or distribution of Paradigm Holdings' common stock owned by the selling stockholders
may be effected directly to purchasers by the selling stockholders or by pledgees, transferees or other successors in interest, as principals or
through one or more underwriters, brokers, dealers or agents from time to time in one or more transactions (which may involve crosses or block
transactions) (i) on the over-the-counter market or in any other market on which the price of Paradigm Holdings' shares of common stock are
quoted or (ii) in transactions otherwise than on the over-the-counter market or in any other market on which the price of Paradigm Holdings'
shares of common stock are quoted. Any transferees and pledges will be identified by a post-effective amendment to the accompanying
registration statement. Any of such transactions may be effected at market prices prevailing at the time of sale, at prices related to such
prevailing market prices, at varying prices determined at the time of sale or at negotiated or fixed prices, in each case as determined by a selling
stockholder or by agreement between a selling stockholder and underwriters, brokers, dealers or agents, or purchasers. If the selling
stockholders effect such transactions by selling their shares of Paradigm Holdings' common stock to or through underwriters, brokers, dealers
or agents, such underwriters, brokers, dealers or agents may receive compensation in the form of discounts, concessions or commissions from
the selling stockholders or commissions from purchasers of common stock for whom they may act as agent (which discounts, concessions or
commissions as to particular underwriters, brokers, dealers or agents may be in excess of those customary in the types of transactions
involved). Any brokers, dealers or agents that participate in the distribution of the common stock may be deemed to be underwriters, and any
profit on the sale of common stock by them and any discounts, concessions or commissions received by any such underwriters, brokers, dealers
or agents may be deemed to be underwriting discounts and commissions under the Securities Act.

Under the securities laws of certain states, the shares of common stock may be sold in such states only through registered or licensed brokers or
dealers. The selling stockholders are advised to ensure that any underwriters, brokers, dealers or agents effecting transactions on behalf of the
selling stockholders are registered to sell securities in all fifty states. In addition, in certain states the shares of common stock may not be sold
unless the shares have been registered or qualified for sale in such state or an exemption from registration or qualification is available and is
complied with.

Our common stock is deemed to be "penny stock" as that term is defined in Rule 3a51-1 promulgated under the Securities Exchange Act of
1934. Penny stocks are stock: (i) with a price of less than $5.00 per share; (ii) that are not traded on a "recognized" national exchange; (iii)
whose prices are not quoted on the NASDAQ automated quotation system (NASDAQ listed stock must still have a price of not less than $5.00
per share); or (iv) in issuers with net tangible assets less than $2.0 million (if the issuer has been in continuous operation for at least three years)
or $5.0 million (if in continuous operation for less than three years), or with average revenues of less than $6.0 million for the last three years.

Broker/dealers dealing in penny stocks are required to provide potential investors with a document disclosing the risks of penny stocks.
Moreover, broker/dealers are required to determine whether an investment in a penny stock is a suitable investment for a prospective investor.
These requirements may reduce the potential market for our common stock by reducing the number of potential investors. This may make it
more difficult for investors in our common stock to sell shares to third parties or to otherwise dispose of them. This could cause our stock price
to decline.

We will pay all the expenses incident to the registration, offering and sale of the shares of common stock to the public hereunder other than
commissions, fees and discounts of underwriters, brokers, dealers and agents. We estimate that the expenses of the offering to be borne by us
will be approximately $50,000. The estimated offering expenses consist of: a SEC registration fee of $2,000, printing expenses of $2,500,
accounting fees of $15,000, legal fees of $30,000 and miscellaneous expenses of $500. We will not receive any proceeds from the sale of any
of the shares of common stock by the selling stockholders.

The selling stockholders should be aware that the anti-manipulation provisions of Regulation M under the Exchange Act will apply to
purchases and sales of shares of common stock by the selling stockholders, and that there are restrictions on market-making activities by
persons engaged in the distribution of the shares. Under Registration M, the selling stockholders or their agents may not bid for, purchase, or
attempt to induce any person to bid for or purchase, shares of common stock of Paradigm Holdings while such selling stockholder is
distributing shares covered by this Prospectus. Accordingly, except as noted below, the selling stockholders are not permitted to cover short
sales by purchasing shares while the distribution is taking place. The selling stockholders are advised that if a particular offer of common stock
is to be made on terms constituting a material change from the information set forth above with respect to the Plan of Distribution, then, to the
extent required, a post-effective amendment to the accompanying registration statement must be filed with the Securities and Exchange
Commission.

                                                                          19
                                          MANAGEMENT'S DISCUSSION AND ANALYSIS
                                    OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THE FOLLOWING INFORMATION SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED

FINANCIAL STATEMENTS OF PARADIGM HOLDINGS AND THE NOTES THERETO APPEARING ELSEWHERE IN THIS FILING.
STATEMENTS IN THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION AND ELSEWHERE IN THIS
PROSPECTUS, THAT ARE NOT STATEMENTS OF HISTORICAL OR CURRENT FACT, CONSTITUTE "FORWARD-LOOKING
STATEMENTS."

Overview

                                                                     General

Paradigm Holdings Inc. is an information technology and business solutions provider specializing in information technology infrastructure and
software engineering support services, business continuity planning and emergency management services and software to government and
commercial clients. Paradigm Holdings, Inc. is comprised of two operating subsidiaries, Paradigm Solutions Corporation and Paradigm
Solutions International.

Paradigm Solutions Corporation is the federal subsidiary whose core competencies are in mission critical systems that focus on key federal
agencies such as Justice, Treasury and Homeland Security. Paradigm Solutions International is the newly formed commercial subsidiary whose
core competencies are developing and delivering continuity and information technology security/risk management consulting for both
commercial businesses and government agencies. Our innovations in business continuity development, planning, and information technology
security have positioned us to become a leader in the fragmented Business Continuity and Continuity of Operations industry.

We derive substantially all of our revenues from fees for information technology solutions and services. We generate these fees from contracts
with various payment arrangements, including time and materials contracts, fixed-price contracts and cost-reimbursable contracts. We typically
issue invoices monthly to manage outstanding accounts receivable balances. We recognize revenues on time and materials contracts as the
services are provided. We recognize revenues on fixed-price contracts using the percentage of completion method as services are performed
over the life of the contract, based on the costs we incur in relation to the total estimated costs. We recognize and make provisions for any
anticipated contract losses at the time we know and can estimate them. Fixed-price contracts are attractive to clients and, while subject to
increased risks, provide opportunities for increased margins. We recognize revenues on cost-reimbursable contracts as services are provided.
These revenues are equal to the costs incurred in providing these services plus a proportionate amount of the fee earned. We have historically
recovered all of our costs on cost-reimbursable contracts, which means we have lower risk and our margins are lower on these contracts. For
the six months ended June 30, 2005, our business was comprised of 58% fixed price, 27% time and material, and 15% cost-reimbursable
contracts.

Our historical revenue growth is attributable to various factors, including an increase in the size and number of projects for existing and new
clients. During the six months ended June 30, 2005, contracts with the federal government and contracts with prime contractors of the federal
government accounted for approximately 98% of our revenues. During that same period, our five largest clients generated approximately 97%
of our revenues. In most of these engagements, we retain full responsibility for the end-client relationship and direct and manage the activities
of our contract staff.

Paradigm Solutions Corporation utilized the Small Business Administration (SBA)
8(a) Business Development Program to access the federal marketplace starting in October of 1995 and graduated from the program in October
of 2004. The term "graduate" is used to refer to a Participant's exit from the 8(a) BD Program at the expiration of the Participant's term, thus the
business is no longer considered 8(a). This program, allowed the business to build a base of business with various federal civilian agencies. The
backlog of federal business under this program will continue until the contracts end, after which we will pursue several avenues to maintain the
business we believe is important to our strategy in this marketplace. This includes either migrating this work to other government contract
vehicles, if allowed by the customer, or taking on a subcontract role when the business comes up for re-compete and teaming with a SBA
business who would be the prime. SBA 8(a) contracts which provide 32%, 43% and 25% of our current SBA 8(a) revenues will come up for
renewal in 2005, 2006 and 2007, respectively.

Due to our graduation from the Small Business Administration 8(a) Business Development Program, we are no longer classified as a small
disadvantaged business by the federal government. Accordingly, we will no longer have access to contract vehicles set aside for 8(a)
businesses. As of October 2004, Paradigm Solutions Corporation began competing solely in the open marketplace for federal business. We
have a history of winning contracts in "full and open" competitions, including contracts at the Department of Housing and Urban Development,
Department of Treasury and the Department of Commerce. Paradigm Solutions will continue to aggressively pursue opportunities in the federal
and commercial marketplace. We believe we can mitigate the impact of transitioning from the 8(a) program through the acquisition of new
contract vehicles and the expansion of work with current customers.

                                                                        20
Our most significant expense is direct costs, which consist primarily of direct labor, subcontractors, materials, equipment, travel and an
allocation of indirect costs including fringe. The number of subcontract and consulting employees assigned to a project will vary according to
the size, complexity, duration and demands of the project.

Selling, general and administrative expenses consist primarily of costs associated with our executive management, finance and administrative
groups, human resources, marketing and business development resources, employee training, occupancy costs, R&D expenses, depreciation
and amortization, travel, and all other corporate costs.

Other income and expense consists primarily of interest income earned on our cash and cash equivalents, interest payable on our revolving
credit facility.

Description Of Critical Accounting Policies

Management's Discussion and Analysis of Financial Condition and Results of Operations discusses our consolidated financial statements,
which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of
these consolidated financial statements requires management to make estimates and judgments that affect the reported amount of assets and
liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. On an ongoing basis, management evaluates its estimates including those related to
contingent liabilities, revenue recognition, and other intangible assets. Management bases its estimates on historical experience and on various
other factors that are believed to be reasonable at the time the estimates are made. Actual results may differ from these estimates under different
assumptions or conditions. Management believes that our critical accounting policies which require more significant judgments and estimates
in the preparation of our consolidated financial statements are revenue recognition, costs of revenues, and property and equipment.

Revenue Recognition

Services are performed under contracts that may be categorized into three primary types: time and materials, cost-plus reimbursement and firm
fixed price. Revenue for time and materials contracts is recognized as labor is incurred at fixed hourly rates, which are negotiated with the
customer, plus the cost of any allowable material costs and out-of-pocket expenses. Time and materials contracts are typically more profitable
than cost-plus contracts because of our ability to negotiate rates and manage costs on those contracts. Revenue is recognized under cost-plus
contracts on the basis of direct and operating costs and expenses incurred plus a negotiated profit calculated as a percentage of costs or as
performance-based award fee. Cost-plus type contracts provide relatively less risk than other contract types because we are reimbursed for all
direct costs and certain operating costs and expenses, such as overhead and general and administrative expenses, and are paid a fee for work
performed. For certain cost plus type contracts, which are referred to as cost-plus award fee type contracts, we recognize the expected fee to be
awarded by the customer at the time such fee can be reasonably estimated, based on factors such as our prior award experience,
communications with the customer regarding our performance, including any interim performance evaluations rendered by the customer or our
average historical award fee rate for the company. The Company has two basic categories of fixed price contract: fixed unit price and fixed
price-level of effort. Revenues on fixed unit price contracts, where specific units of output under service agreements are delivered, are
recognized as units are delivered based on the specific price per unit. Revenue on fixed price maintenance contracts is recognized on a pro-rata
basis over the length of the service period. Revenue for the fixed price level of effort contacts is recognized based upon the number of units of
labor actually delivered multiplied by the agreed rate for each unit of labor.

Contract revenue recognition inherently involves estimation. Examples of such estimates include the level of effort needed to accomplish the
tasks under the contract, the cost of those efforts, and a continual assessment of our progress toward the completion of the contract. From time
to time, circumstances may arise which require us to revise our estimated total revenue or costs. Typically, these revisions relate to contractual
changes. To the extent that a revised estimate affects contract revenue or profit previously recognized, we record the cumulative effect of the
revision in the period in which it becomes known. In addition, the full amount of an anticipated loss on any type of contract is recognized in the
period in which it becomes known. We may be exposed to variations in profitability if we encounter variances from estimated fees earned
under cost plus-award fee contracts and estimated costs under fixed price contracts. Software revenue recognition is in accordance with AICPA
Statement of Position 97-2. Since the Company has not established VSOE, recognition of revenue from the sale of licenses is over the term of
the contract.

Costs Of Revenues

Our costs are categorized as direct or selling, general & administrative expenses. Direct costs are those that can be identified with and allocated
to specific contracts and tasks. They include labor, subcontractor costs, consultant fees, travel expenses, materials and an allocation of indirect
costs. Indirect costs consist primarily of fringe benefits (vacation time, medical/dental, 401K plan matching contribution, tuition assistance,
employee welfare, worker's compensation and other benefits), intermediate management and certain other non-direct costs which are necessary
to provide direct labor. Indirect costs, to the extent that they are allowable, are allocated to contracts and tasks using appropriate
government-approved methodologies. Costs determined to be unallowable under the Federal Acquisition Regulations cannot be allocated to
projects. Our principal unallowable costs are interest expense and certain general and administrative expenses. A key element to be successful
in our

                                                                        21
business is our ability to control indirect and unallowable costs, enabling us to profitably execute our existing contracts and successfully bid for
new contracts. Costs of revenues are considered to be a critical accounting policy because of the direct relationship to revenue recognized.

Property And Equipment

Property and equipment are recorded at the original cost to the corporation and are depreciated using straight-line methods over established
useful lives of three to seven years. Software is recorded at original cost and depreciated on the straight-line basis over three years. Leasehold
improvements are recorded at the original cost and are depreciated on the straight-line over the life of the lease.

Recent Accounting Pronouncements

New accounting pronouncements that have a current or future potential impact on our financial statements are as follows:

                                                 Summary of Statement No. 123 (Revised 2004)

                                                              Share-Based Payment

This Statement is a revision of FASB Statement No. 123, Accounting for Stock-Based Compensation. This Statement supersedes APB Opinion
No. 25, Accounting for Stock Issued to Employees, and its related implementation guidance.

                                                             Scope of this Statement

This Statement establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or
services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of
the entity's equity instruments or that may be settled by the issuance of those equity instruments. This Statement focuses primarily on
accounting for transactions in which an entity obtains employee services in share-based payment transactions. This Statement does not change
the accounting guidance for share-based payment transactions with parties other than employees provided in Statement 123 as originally issued
and EITF Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction
with Selling, Goods or Services." This Statement does not address the accounting for employee share ownership plans, which are subject to
AICPA Statement of Position 93-6, Employers' Accounting for Employee Stock Ownership Plans. The Company does not believe that FASB
Statement No. 123R will have a material effect on its financial statements.

Results of Operations

The following tables set forth the relative percentages that certain items of expense and earnings bear to revenue.
                                                Three Months Ended June 30,                         Six Months Ended June 30,
                                     Restated                   Restated                 Restated                  Restated
   (Dollars in                          2005         2004         2005          2004        2005       2004          2005         2004
   thousands)                        -------      -------       ------        ------     -------    -------        ------       ------
   Revenue                           $15,630      $15,272        100.0%        100.0%    $30,676    $29,383         100.0%       100.0%
   Cost of Revenue                    13,204       13,233         84.5          86.6      26,014     25,759          84.8         87.7
                                     -------      -------       ------        ------     -------    -------        ------       ------
   Gross Margin                        2,426        2,039         15.5          13.4       4,662      3,624          15.2         12.3
   Selling, General & Administrative   1,938        2,167         12.4          14.2       3,880      3,890          12.6         13.2
                                     -------      -------       ------        ------     -------    -------        ------       ------
   Income (loss) from Operations         487         (128)         3.1          (0.8)        782       (266)          2.6         (0.9)
   Other (expense) income                (60)         (15)        (0.4)         (0.1)        (95)       (26)         (0.3)        (0.1)
   Income tax (benefit)provision         130          (55)*        0.8          (0.4)        231       (110)*         0.8         (0.4)
                                     -------      -------       ------        ------     -------    -------        ------       ------
   Net Income (loss)                    $298         ($88)*        1.9%         (0.6%)      $456      ($182)*         1.5%        (0.6%)




* proforma

                                                                         22
The table below sets forth, for the periods indicated the service mix in revenue with related percentages of total revenue.
                                     --------------------------------------           ---------------------------------------
                                          Three Months Ended June 30,                         Six Months Ended June 30,
                                     Restated                 Restated                Restated                    Restated
                                        2005        2004        2005        2004         2005          2004         2005        2004
     (Dollars in thousands)          -------     -------      ------      ------      -------       -------       ------      ------
     Federal Service Contracts       $10,718     $10,179        68.6%       66.7%     $20,773       $19,582         67.7%       66.7%
     Federal Repair &
     Maintenance Contracts             4,705       5,088        30.1        33.3        9,509        9,791         31.0         33.3
     Commercial Contracts                207           5         1.3         0.0          394           10          1.3          0.0
                                     -------     -------      ------      ------      -------      -------       ------       ------
     Total Revenue                   $15,630     $15,272       100.0%      100.0%     $30,676      $29,383        100.0%       100.0%




Our revenues and operating results may be subject to significant variation from quarter to quarter depending on a number of factors, including
the progress of contracts, revenues earned on contracts, the number of billable days in a quarter, the timing of the pass-through of their direct
costs, the commencement and completion of contracts during any particular quarter, the schedule of the government agencies for awarding
contracts, the term of each contract that we have been awarded and general economic conditions. Because a significant portion of our expenses,
such as personnel and facilities costs, are fixed in the short term, successful contract performance and variation in the volume of activity as well
as in the number of contracts commenced or completed during any quarter may cause significant variations in operating results from quarter to
quarter.

The Federal Government's fiscal year ends September 30. If a budget for the next fiscal year has not been approved by that date, our clients
may have to suspend engagements that we are working on until a budget has been approved. Such suspensions may cause us to realize lower
revenues in the fourth quarter of the year. Further, a change in presidential administrations and in senior government officials may negatively
affect the rate at which the Federal Government purchases technology.

As a result of the factors above, period-to-period comparisons of our revenues and operating results may not be meaningful. You should not
reply on these comparisons as indicators of future performance as no assurances can be given that quarterly results will not fluctuate, causing a
possible material adverse effect on our operating results and financial condition.

                                      Comparison of the Three Months Ended June 30, 2005 and 2004

Revenue. For the three months ended June 30, 2005, our revenues increased 2.3% to $15.6 million from $15.3 million for the same period in
2004. This increase is primarily due to additional task order work from our Housing and Urban Development client of $0.6 million, new
revenue from the sale of our OpsPlanner software and services of $0.2 million, which was partially off-set by a decrease of ($0.4) million in
our maintenance and repair business with our Internal Revenue Service client.

Cost of Revenue. Cost of revenue includes direct labor, materials, subcontracts and an allocation of indirect costs. Generally, changes in cost of
revenue are correlated to changes in revenue as resources are consumed in the production of that revenue. For the three months ended June 30,
2005, cost of revenue remained flat at $13.2 million versus the same period in 2004. As a percentage of revenue, cost of revenue was 84.5% for
the three months ended June 30, 2005 as compared to 86.6% for the three months ended June 30, 2004. This decrease in cost as a percentage of
revenue was primarily due to lower operating expenses on our fixed price federal service contracts, which was partially off-set by incremental
hardware expenses on our Federal Repair and Maintenance contracts.

Gross Margin. For the three months ended June 30, 2005, gross margin increased 19.0% to $2.4 million from $2.0 million for the same period
in 2004. Gross margin as a percentage of revenues increased to 15.5% for the three months ended June 30, 2005 from 13.4% for the three
months ended June 30, 2004. This overall increase in gross margin was a result of lower operating expenses on our fixed price Federal Service
contracts and an increase in our federal service contract business, which has higher margins than our federal repair and maintenance contracts,
as a percentage of our total revenue.

Selling, General & Administrative Expenses. For the three months ended June 30, 2005, selling, general and administrative expenses decreased
by 10.6% to $1.9 million from $2.2 million for the same period in 2004. As a percentage of revenue, selling, general and administrative
expenses decreased to 12.4% from 14.2% for the same period in 2004. The decrease in expense is primarily attributable to a decrease in
compensation related expenses.

Net Income. For the three months ended June 30, 2005, net income increased to $0.3 million from pro-forma ($0.1) million for the same period
in 2004. This increase was a due to the increases in gross margin and decreased cost of revenue as discussed above.

                                                                        23
                                       Comparison of the Six Months Ended June 30, 2005 and 2004

Revenue. For the six months ended June 30, 2005, our revenues increased 4.4% to $30.7 million from $29.4 million for the same period in
2004. This increase is due to additional task order work from our Housing and Urban Development client of $1.2 million, new revenue from
sales of our OpsPlanner software and services of $0.4 million, which was partially off-set by a decrease of ($0.4M) in our maintenance and
repair business with our Internal Revenue Service client.

Cost of Revenue. Cost of revenue includes direct labor, materials, subcontracts and an allocation of indirect costs. Generally, changes in cost of
revenue are correlated to changes in revenue as resources are consumed in the production of that revenue. For the six months ended June 30,
2005, cost of revenue increased 1.0% to $26.0 million from $25.8 million for the same period in 2004. As a percentage of revenue, cost of
revenue was 84.8% for the six months ended June 30, 2005 as compared to 87.7% for the six months ended June 30, 2004. Cost as a percentage
of revenue decreased due to lower operating expenses on our fixed price federal service contracts and an increase in our commercial software
and services revenue, which has higher gross margins than our federal business. The decreases in cost as a percentage of revenue attributable to
our federal service contracts and commercial business were partially off-set by incremental hardware expense on our federal service and repair
and maintenance business.

Gross Margin. For the six months ended June 30, 2005, gross margin increased 28.6% to $4.7 million from $3.6 million for the same period in
2004. Gross margin as a percentage of revenues increased to 15.2% for the six months ended June 30, 2005 from 12.3% for the six months
ended June 30, 2004. This overall increase in gross margin was a result of lower operating expenses on our fixed price federal service contracts
and an increase in our commercial software and services revenue, which has higher gross margins than our federal business.

Selling, General & Administrative Expenses. For the six months ended June 30, 2005, selling, general and administrative expenses remained
flat at $3.9 million versus the same period in 2004. As a percentage of revenue, selling, general and administrative expenses decreased to
12.6% for the six months ended June 30, 2005 versus 13.2% for the same period in 2004.

Net Income. For the six months ended June 30, 2005, net income increased to $0.5 million from pro-forma ($0.2) million for the same period in
2004. This increase was due to the increase in gross margin, as discussed above.

                                                  (Dollars in thousands except for the percentages)
                                                                 Twelve Months Ended December 31,
                                              FY04              FY03          FY02          FY04               FY03               FY02
                                            -------           -------       -------       -------            -------            -------
   Revenue                                  $61,756           $51,206       $37,673         100.0%             100.0%             100.0%
   Cost of Revenue                           54,545            45,810        32,420          88.3               89.5               86.0
   Gross Margin                               7,211             5,396         5,253          11.7               10.5               14.0
   Selling, general & administrative          8,994             4,951         2,890          14.6                9.6                7. 7
   Income (loss) from Operations             (1,783)              445         2,363          (2.9)               0.9                6.3
   Total other (expense) income                 (49)               21            32          (0.0)               0.0                0.1
   Proforma Income tax (benefit)
    provision                                  (707)              180             925            (1.1)            0.3              2.5
   Proforma Net Income (loss)                (1,125)              287           1,471            (1.8)            0.6              3.9



The table below sets forth, for the periods indicated, the service mix in revenue with related percentages of total revenue and the year-to-year
change in dollars and percent.
                                                                                                        Year-to-Year Change
                                                                                                -----------------------------------
                                                 Year - % of Total                              FY 04 to FY 03       FY03 to FY02
                             --------------------------------------------------------           ---------------     ---------------
                             Restated                                                              Restated Restated
                               2004       %        2003       %        2002       %                $        %          $        %
                              ------    -----     ------    -----     ------    -----           ------    -----     ------    -----
   Federal Service
   Contracts                  39,428      63.8%      36,082      70.5%    26,657        70.8%   3,346      9.3%         9,425     35.4%

   Federal Repair &
   Maintenance Contracts      22,269      36.1%      15,115      29.5%    11,016        29.2%   7,154     47.3%         4,099     37.2%

   Commercial Service
   Contracts                      59       0.1%           9      0.0%         --       0.0%         50   555.6%          9
                              ------     -----       ------    -----      ------     -----      ------   -----      ------       -----
   Total Revenue              61,756     100.0%      51,206    100.0%     37,673     100.0%     10,550    20.6%     13,533        35.9%
                              ======     =====       ======    =====      ======     =====      ======   =====      ======       =====


                                                                         24
Year Ended December 31, 2004 Compared with Year Ended December 31, 2003

Revenue. Revenue increased 20.6% to $61.8 million for 2004 from $51.2 million for 2003. The $3.3 million increase in federal services
revenue was driven by a full year of revenue on a four year Department of Housing and Urban Development contract awarded in March of
2003. The $3.6 million increase attributable to this project was partially off-set by a decrease in task-order work with another civilian agency
client. The 47.3% increase in federal repair and maintenance contracts was a result of organic growth with our Department of Treasury
customer, which included a full year of revenue on a five year printer maintenance contract with the IRS that was awarded in July of 2003. The
entire growth of commercial revenue came from business continuity services in the area of risk assessment and business impact analysis with
two new commercial customers, Greenhill and Aventis.

Cost of Revenue. Cost of revenue increased 19.1% to $54.5 million for 2004 from $45.8 million for 2003. The increase was due primarily to an
increase in hardware and software delivered to our Department of Treasury customer, which was $5.5 million of the $8.7 million increase. In
addition, our increase in federal project personnel to 255 as of December 31, 2004, as compared to 237 as of December 31, 2003 resulted in an
additional $1.7 million in expense. The company also continued its investment in the launch of the commercial continuity business, which
resulted in $1.5 million in expense versus $0.6 million for the same period in 2003. The remaining $0.6 million increase was a result of other
direct costs associated with our increased revenues.

Gross Margin. Gross margin increased 33.6% to $7.2 million for 2004 from $5.4 million in 2003. This $1.8 million in growth is associated with
the $10.6 million growth in revenue. Overall gross margin as a percentage of revenues increased to 11.7% in 2004 from 10.5% in 2003. Service
contract gross margin increased by 81.8% to 14.0% in 2004 from 9.5% in 2003 due to increased employee utilization and operational cost
efficiencies as our contracts awarded in 2003 graduated from the start-up phase. Repair and maintenance contract gross margin decreased by
49.5% to 7.5% in 2004 from 13.1% in 2003 as a result of incremental costs on the IRS LTMCC contract.

Selling, General & Administrative. Selling, general & administrative (SG&A) expenses increased 80.2% to $9.0 million from $5.0 million for
the same period in 2003. As a percentage of revenue, SG&A expenses increased to 14.6% for the twelve months ended December 31, 2004
from 9.6% for the same period in 2003. The increase was attributable to additional compensation related expenses from increased staffing of
$1.2 million, research and development costs associated with the design and launch of our OpsPlanner product of $1.0 million, additional bid
and proposal expenses of $0.2 million, additional facilities expenses of $0.4 million due to a full year of expense for our Rockville
headquarters, expenses of $0.4 to acquire Cheyenne Resources and an additional $0.4 million in 3rd party fees including legal, consulting and
audit support related to the acquisition.

Net Income. Net income as reported in the pro-forma table in the selected financial data section, decreased to a loss of $1.1 million for 2004
from income of $0.3 million in 2003. This decrease was associated with the incremental selling, general and administrative expenses discussed
above, which was offset by the income tax benefit of $0.7 million.

Year Ended December 31, 2003 Compared with Year Ended December 31, 2002

Revenue. Revenues increased 35.9% to $51.2 million for 2003 from $37.7 million for 2002. The $13.5 million increase in revenue primarily
reflects an increase in organic growth with our existing clients which included $3 million with the Department of Treasury and $4 million with
the Department of Justice. We define organic growth as the increase in revenues excluding the revenues associated with acquisitions,
divestitures and closures of businesses in comparable periods. Two new contract awards also contributed to the increase in revenue in 2003,
including a four year Housing and Urban Development Community Planning and Development (HUD-CPD) contract awarded in March of
2003 which contributed $6 million and a five year printer maintenance contract with the IRS that was awarded in July of 2003 which
contributed $0.5 million.

Cost of Revenue. Cost of revenue increased 41.4% to $45.8 million for 2003 from $32.4 million for 2002. The increase in cost of revenues was
due in part to the corresponding growth in revenues resulting from organic growth and the increase in employee headcount. Project personnel
headcount grew to 237 as of December 31, 2003, as compared to 174 as of December 31, 2002. As a percentage of revenue, cost of revenue
increased to 89.5% for the twelve months ended December 31, 2003 versus 86.0% for the same period in 2002. The increase in costs as a
percentage of revenue was primarily attributable to the investment made in the commercial continuity business of $0.6 million, increased
facilities expense related to the opening of our new headquarters office in Rockville and our new customer site location in Washington, DC of
$0.5 million and start-up related costs related to the new HUD-CPD and IRS Print maintenance contracts of $0.5 million.

Gross Margin. Gross margin increased 2.7% to $5.4 million for 2003 from $5.3 million in 2002. Gross margin as a percentage of revenues
decreased to 10.5% in 2003 from 14.0% in 2002. The decrease in gross margin was attributable to the investment in the commercial continuity
business, start-up costs related to our new HUD-CPD and IRS Print contracts and increased facility costs as stated above in cost of revenue.

Selling, General & Administrative. Selling, general & administrative (SG&A) expenses increased 71.3% to $5.0 million from $2.9 million for
the same period in 2003. As a percentage of revenue, SG&A expenses increased to 9.6% for the twelve months ended December 31, 2003 from
7.7% for the same period in 2002. Our total sales, general and administrative headcount increased to 32 employees as of December 31,

                                                                       25
2003 compared to 27 employees as of December 31, 2002. The increase in expenses was attributable to research and development costs related
to the OpsPlanner software product of $0.6 million and additional compensation expenses related to the increased staffing and management
bonuses.

Net Income. Net income as reported in the pro-forma table in the selected financial data section decreased to $0.3 million for 2003 from $1.5
million for 2002. The decrease was attributable to the investments made in the business plus the incremental selling, general and administrative
expenses as discussed above. This was off-set by a decrease in the pro-forma tax provision of $0.7 million.

Liquidity and Capital Resources

Our primary sources of liquidity are our existing cash, cash generated from operations and cash available from borrowings under our revolving
credit facility. We expect our principal uses of cash to be working capital, capital equipment and the continued enhancement of our OpsPlanner
software suite. During Fiscal 2005, we intend to spend approximately $0.5 million for capital equipment, mainly technology refreshes of
existing equipment plus enhancements to our existing infrastructure systems. We also intend on spending $0.8 million for software
enhancements to our existing OpsPlanner tool. Based upon the current level of operations, we believe that cash flow from operations, together
with borrowings available from our existing revolving credit facility, are adequate to meet our future liquidity needs for the next twelve
months.

For the six months ended June 30, 2005 and for the fiscal year ended December 31, 2004, we funded working capital requirements, our
investment in business continuity, and the expense of going public primarily through internally generated operating cash flow and funds
borrowed under our existing revolving credit facility.

For six months ended June 30, 2005, the net cash flow decreased by $49 thousand versus a net increase in cash of $148 thousand for the same
period last year.

Net cash used by operations of $0.9 million for the six months ended June 30, 2005 was attributable to a decrease in prepaid expenses primarily
associated with the IRS LTMCC contract offset by decreases in accounts payable, deferred revenue and an increase in accounts receivable. The
decrease in deferred revenue for the six months ended June 30, 2005 and fiscal year ended December 31, 2004 is primarily related to the
Company's IRS LTMC and Aventis contracts. The deferred revenue for IRS LTMCC is associated with the amortization of software
maintenance revenue related to system upgrades, involving additional software licenses or new software products, and annual software
maintenance contracts purchased in October 2004. Software maintenance contracts are purchased annually by our client during quarter ending
December 31 and amortized over the contract period. The timing and amount of deferred revenue will be dependent on the customer's install
base and the timing of additional software purchases related to system upgrades outside of the normal purchasing cycle. At this time, we do not
anticipate additional upgrades for the fiscal year ended December 31, 2005. It is the Company's practice to invoice the full contract value at
project inception for our commercial contracts. Aventis, our largest commercial contract, was invoiced during the fiscal year ended December
31, 2004. Deferred revenue has decreased due to the fulfillment of services during the six months ended June 30, 2005. Deferred revenue
related to commercial contracts should increase in future quarters due to the anticipated growth of our commercial business. The decrease in
accounts payable is due to system upgrade and software maintenance related invoices associated with our IRS LTMCC contract, which were
accrued during the period ending December 31, 2004 but paid during the six months ended June 30, 2005. The increase in accounts receivable
is primarily attributable to the timing of invoices for task orders related to our Housing and Urban Development client. Net cash provided by
operations of $2.0 million for the six months ended June 30, 2004 was attributable to a decrease in accounts receivable offset by a decreases in
accounts payable and accrued expenses.

Net cash used by investing activities was $0.1 million for the six months ended June 30, 2005 versus $0.2 million for the same period in 2004.
This use of cash relates to the purchase of capital equipment in support of operations.

Net cash provided by financing activities was $1.0 million for the six months ended June 30, 2005 and relates to proceeds from the line of
credit to fund operations. Net cash used by financing activities of $1.7 million for the six months ended June 30, 2004 is related to payments
made to repay the line of credit.

For the year ended December 31, 2004, the corporation generated an increase in net cash flow of $161 thousand whereas, the prior year ended
with a net decrease in cash flow of $613 thousand. The main contributing factors were an overall reduction of accounts receivable, as well as an
increase in accounts payable and accrued expenses. The corporation's accounts receivable decreased $3.0 million to $11.5 million for the year
ended December 31, 2004, as compared to an increase of $6.0 million for the year ended December 31, 2003. The decrease was primarily a
result of internal process enhancements related to collections. Accounts receivable at the end of 2004 represented 64.9% of total assets,
compared to 78.9% at the end of 2003. Prepaid expense increased to $4.3 million for year ended December 31, 2004 versus $2.2 million for
year ended December 31, 2003. The $2.1 million increase was primarily due to year-end hardware and software maintenance purchases
associated with our IRS LTMCC contract. Although the purchase of the maintenance contracts is an annual event, we anticipate prepaid
expenses will return to 2003 levels for year ending December 31, 2005 due to a reduction in the term of the required maintenance contracts
from 12 months to 6 months. The corporation funded this incremental purchase with operating cash flow and utilization of our existing credit

                                                                       26
facility. Effective November 5, 2004, PSC revoked its S-Corporation status. At that date, the Corporation had net income which has been
recognized for financial reporting purposes, but not for income tax purposes of approximately $6.6 million. This net deferred income will be
recognized for income tax purposes equally over four years beginning with the year ending December 31, 2004. The revocation of the
S-Corporation status resulted in a deferred income tax liability that was recorded on the date of revocation of approximately $2.6 million. Net
income for the year ending December 31, 2004 and retained earnings were reduced by this amount.

For the year ended December 31, 2004, net cash used by operations was $117 thousand, which was attributable to the decrease in accounts
receivable off-set by the net loss and increase in prepaid expenses. Cash used by operations was $1.6 million for the year ended December 31,
2003, which was attributable to increases in accounts receivable and prepaid expenses off-set by increases in accounts payable and deferred
revenue.

Cash used for investing was $292 thousand during 2004 and $995 thousand in 2003, which was attributable to the purchase of property and
equipment to support operations. Equipment acquisition during 2003 was significantly higher than 2004, as a result of capital investments made
by the corporation relating to the start-up of the HUD-CPD and IRS printer maintenance contracts, technology refresh of computers, build-out
of our internal innovation center at our headquarter location, and the investment associated with a web-based time-keeping system.

Cash provided by financing was $570 thousand for the year ended December 31, 2004, compared to $2.0 million as of December 31, 2003.
Both were comprised of transactions under the corporations existing line of credit and banking activity with SunTrust Bank.

The Company had a line of credit arrangement with SunTrust Bank which expired on June 30, 2005. Subsequently, on June 22, 2005 we
received an extension of the line of credit arrangement through September 30, 2005. Under the terms of the latest agreement, the Corporation
had to maintain: (1) minimum tangible net worth of $2,650,000 beginning on and as of June 30, 2005; (2) debt coverage ratio of not more than
5.0 to 1.0 beginning on and as of June 30, 2005; (3) minimum quarterly net income of $1.00 for the quarters ending June 30 and September 30,
2005. The Corporation was in compliance with the line of credit agreement covenants as of June 30, 2005.

The Company terminated its line of credit agreement with SunTrust Bank effective September 1,2005.

On July 28, 2005, the Company entered into a two year Loan and Security Agreement with Chevy Chase Bank that provides for a revolving
line of credit facility of up to $9 million. The agreement became effective August 4, 2005. The revolving line of credit will be used to borrow
funds for working capital and general corporate purposes. The Company will terminate its existing revolving line of credit facility with
SunTrust once this agreement is activated.

The revolving loans under the Chevy Chase Bank Loan and Security Agreement are secured by a first priority lien on substantially all of the
assets of the Company, excluding intellectual property and real estate. Under the agreement, the line is due on demand and interest is payable
monthly depending on the Corporation's leverage ratio at the LIBOR rate plus the applicable spread which ranges from 2.25% to 3.00%. Under
the terms of the agreement, the Corporation may borrow up to the lesser of $9,000,000 or 90% of eligible U.S. Government receivables plus
80% of eligible commercial receivables plus 75% of the aggregate amount of billable but unbilled accounts to a maximum of $3,000,000. The
Loan and Security Agreement requires that the Company maintain the following covenants and ratios: (1) minimum tangible net worth of
$2,000,000 plus 50% of Company's net income for each fiscal year beginning with fiscal year ending December 31, 2005; (2) debt coverage
ratio of not less than 1.500 to 1.000; (3) maximum leverage ratio of 5.50 to 1.00, which will be decreased to 5.25 to 1.00 by December 31, 2005
and 4.00 to 1.00 by December 31, 2006. All working capital, as it relates to these covenants and ratios requirements will be evaluated as of
quarter-end.

The Loan and Security Agreement contains events of default that include among other things, non-payment of principal, interest or fees,
violation of covenants, inaccuracy of representations and warranties, cross default to certain other indebtedness, bankruptcy and insolvency
events, change of control and material judgments. Upon occurrence of an event of default, Chevy Chase Bank is entitled to, among other
things, accelerate all obligations of the Company and sell the Company's assets to satisfy the Company's obligations under the Loan and
Security Agreement.

In the event we require additional funds, whether for acquisitions or otherwise, we may seek additional equity or debt financing. Such financing
may not be available to us on terms that are acceptable to us, if at all, and any equity financing may be dilutive to our stockholders. To the
extent that we obtain additional debt financing, our debt service obligations will increase and the relevant debt instruments may, among other
things, impose additional restrictions on our operations, require us to comply with additional financial covenants or require us to pledge assets
to secure our borrowings.

In the event cash flows are not sufficient to fund operations at the present level and we are unable to obtain additional financing, we would
attempt to take appropriate actions to tailor our activities to our available financing, including revising our business strategy and future growth
plans to accommodate the amount of financing available to us.

                                                                         27
The following summarizes our obligations associated with leases and other commitments at December 31, 2004, and the effect such obligations
are expected to have on our liquidity and cash flow in future periods:
                                                               Less Than         One to          Three to         More than
     (Amounts in Thousands)                   Total            One Year        Three Years      Five Years        Five Years
                                            ----------        ----------       -----------      ----------        ----------
     Contractual Obligations:
     Operating Leases                       $3,975,941        $ 927,804        $1,474,364       $ 905,445         $ 668,328
     Notes Payable - Line of Credit         $3,220,072        $3,220,072       $        0       $        0        $        0
                                            ----------        ----------       ----------       ----------        ----------
     Total                                  $7,196,013        $4,147,876       $1,474,364       $ 905,445         $ 668,328
                                            ==========        ==========       ==========       ==========        ==========


                                                                    28
                                                      DESCRIPTION OF BUSINESS

Company Overview

Paradigm Holdings Inc. ("PDHO"; website: - www.paradigmsolutions.com) provides information technology and business continuity solutions
to government and commercial customers. Headquartered in Rockville, Maryland, the company was founded on the philosophy of high
standards of performance, honesty, integrity, and customer satisfaction and employee morale. With an established core foundation of
experienced executives, the Company rapidly grew from six employees in 1996 to the current level of approximately 300 personnel. Revenues
grew from $51 million in 2003 to over $61 million by the end of 2004. During this period of growth, Paradigm remained centered on
information technology services and solutions.

Paradigm Holdings Inc. consists of two subsidiary companies: Paradigm Solutions Corporation (PSC), which was incorporated in 1996 to
deliver information technology Infrastructure Support Services and Software Engineering Support Services to Federal Agencies, and Paradigm
Solutions International (PSI), which was incorporated in 2004 to deliver Business Continuity Planning and Emergency Management Services
and software to commercial and government clients.

Paradigm Solutions Corporation provides support for mission-critical systems in key federal agencies such as the Departments of Justice,
Treasury and Homeland Security.

Paradigm Holdings formed the PSI subsidiary company to produce a fully-integrated solution for protecting businesses from "all hazard"
interruptions. A customized methodology was developed to provide clients with a comprehensive picture of the risks to their operations,
facilities and people. The software tool, OpsPlanner(TM) is one of the first tool sets to encompass continuity planning, emergency management
and automated notification in one easy-to-use platform. From inception, this platform was developed as an integrated application--unlike the
prevailing competitors which developed continuity planning, emergency management and automated notification as separate software modules.
This technology, when implemented with Paradigm's methods, offers a superior solution in the continuity of operations planning and risk
management area. The release of this Software tool was made in January of 2005 and no material revenue was recognized in 2004.

Paradigm has achieved significant accomplishments including the launch of the Continuous Paradigm Process and Product Improvement
(CP(3)I), the continued evolution of Paradigm's ISO 9001:2000 Quality Management Office, the establishment of strategic Mentor Protege
relationships, and success in building a backlog of business over the last year. Additionally, Paradigm has won over 45% of its pursued
competitive procurements, greatly exceeding the industry standard win rate of 30% to 40%. The Company not only won new business with the
Department of Treasury in 2004, but it also won numerous recompetes of existing contracts including three with the Office of the Comptroller
of the Currency, four with the National Technical Information Service, and one with the Department of Housing and Urban Development.
Paradigm won several GWAC (Government Wide Acquisition Contracts) vehicles including the Department of Justice ITSS III and State of
Maryland MCS. The Company also successfully penetrated the DOD arena by gaining access to multiple GWACs such as DISA Encore, Army
MADD-1, Army CONUS Support Base Services (CSBS), and MATOC Naval Research Systems Integration.

Paradigm has also achieved success providing information technology services to many government and commercial clients, including the
Departments of Homeland Security, Treasury, Justice, Commerce, Housing and Urban Development, the Small Business Administration, IBM,
Lockheed Martin, EDS, and the World Bank. Through a careful analysis of its current marketing practices, Paradigm has determined that its
strategic marketing knowledge and concepts are sound and will continue to produce desirable results in both the federal and commercial
sectors. The Company will maximize revenue through continued growth in its core client base and through selected acquisitions that strengthen
and expand its ability to help government and commercial clients achieve effective disaster recovery and business continuity.

Paradigm's dedication to its customers is reflected in the numerous customer and industry awards it has received:

o United States Secret Service Certificate of Appreciation - 2004

o Department of Treasury Small Business Partner of the Year - 2004

o Internal Revenue Service - Nominated as the IRS Small Business Partner of the Year - 2003 and 2002

o Inc. 500 Fastest Growing Private Companies - 2003

o Washington Technology Fast 50 - 2003 and 2002

o VAR Business Top 500 National Solutions Provider - 2004, 2003 and 2002

o Washington Technology Top 25 8(a) Contractors - 2004, 2003 and 2002

                                                                      29
o Government Computer News Industry Information Technology Award - 2003

o Strategic Airport Security Rollout (SASR) Certificate of Recognition - 2002

                                                             Corporate Organization

On November 3, 2004, Paradigm Holdings Inc., entered into an Agreement and Plan of Reorganization with Paradigm Solutions Merger Corp.,
a Delaware corporation and wholly-owned subsidiary of Paradigm Holdings (the "Merger Sub"), Paradigm Solutions Corporation, a Maryland
corporation and the shareholders of Paradigm Solutions Corporation. Pursuant to the Agreement and Plan of Reorganization, the Merger Sub
was merged with and into Paradigm Solutions Corporation, the surviving corporation and continues its existence under the laws of the State of
Maryland and is a wholly-owned subsidiary of Paradigm Holdings Inc. In consideration of the Merger, the Paradigm Solutions Corporation
shareholders exchanged 13,699 shares of common stock of Paradigm Solutions Corporation, which was 100% of the issued and outstanding
capital stock of Paradigm Solutions Corporation, for 17,500,000 shares of common stock of Paradigm Holdings Inc.

Cheyenne Resources, Inc. was incorporated under the laws of the State of Wyoming on November 17, 1970. According to the securities filings
made by Cheyenne Resources' prior management, Cheyenne Resources, prior to the reverse merger with Paradigm Solutions Merger Sub,
operated principally in one industry segment, the exploration for and sale of oil and gas.

Cheyenne Resources held oil, gas, interests, producing, and selling oil and gas and other mineral substances. Cheyenne Resources did not
engage in refining or retail marketing operations; rather its activities had been restricted to acquiring and disposing of mineral properties, and to
producing and selling oil and gas from its wells.

Prior Principal activities of Cheyenne Resources involved buying leases, filing on federal and state open land leases as well as acquiring and
trading of oil, gas, and other mineral properties, primarily in the Rocky mountain area and Oklahoma.

Cheyenne Resources oil and gas activities included the acquisition of whole or partial interests in oil and gas leases and the farming out or
resale of all or part of its interests in these leases. In connection with farmouts and resales, Cheyenne Resources attempted to retain an
overriding royalty or a working or carried interest.

In 1999, Cheyenne Resources entered into a memorandum of understanding to obtain a 25% interest in Cayenne Records, Inc., which has a
75% interest in NL Records of Nashville, Tennessee. This transaction was rescinded in 2000 due to inability of seller to produce records and
data. No value was recorded in the financial statements. Cheyenne Resources issued 11,473,711 shares of common stock for this interest.

In 1999, Cheyenne Resources entered into an Agreement with Tiger Exploration to acquire the Dixie Gas Field and interests in the Stephens
and Lick Creeks Fields for 12,000,000 shares of common stock. Title and production data could not be verified or produced, and so no value of
assets could be carried.

In June 2000, Cheyenne Resources rescinded its memorandum of understanding with Cayenne Records, Inc. In June 2000, Cheyenne
Resources also rescinded its memorandums of understanding to acquire Dixie gas Field and Interest in Stephens and Lick Creek Fields. No
value was recorded in this financial statement for these acquisitions. Of the 23,473,711 shares issued for the above referenced transactions, all
but 2,623,838 shares were returned.

In January 2004, Skye Blue Ventures, an entity beneficially owned by Mr. Dennis Iler, purchased a controlling interest in Paradigm Holdings,
formerly Cheyenne Resources, Inc. Skye Blue Ventures purchased 2,350,000 shares of common stock of Cheyenne Resources, Inc. from the
former directors of Cheyenne Resources, Inc. for $75,000 and purchased 23,000,000 shares of common stock directly from Cheyenne
Resources, inc. for $50,000. Cheyenne Resources issued 21,300,000 shares out of the 23,000,000 as it only had 21,300,000 available under its
then-current authorized common stock. Mr. Iler, former President and a Director of Cheyenne Resources, Inc. and the then-beneficial owner of
Skye Blue Ventures, brought Cheyenne Resources current in its securities filings, settled its outstanding debt, and assisted in having the
company listed on the Over-the-Counter Bulletin Board. In August 2004, J. Paul Consulting, Shortline Equity Investments and Ultimate
Investments purchased Skye Blue Ventures' ownership interest in Cheyenne Resources, Inc. and subscribed for an aggregate of 10,000,000
shares of common stock of Cheyenne Resources, Inc. for $200,000.

                                                             Common Stock Listing

On May 12, 2005, we filed an application for our common stock to be listed on the Pacific Exchange/ArcaEx. The cost of the listing
application was $10,000. Paradigm has been advised by Pacific Exchange / ArcaEx that it will qualify for listing under their "Tier Two Basic
Standards" when its Registration statement is effective. Paradigm will incur a one-time listing fee of $20,000 and a yearly fee of $2,000.

                                                                         30
      --------------------------------------------------------------------------------------------------------------
      Requirements                                    Tier I                             Tier II
                                                      --------------------------------------------------------------
                                                      Basic            Alternate         Basic            Alternate
      --------------------------------------------------------------------------------------------------------------
      Net Tangible Assets (1)                                                            $2,000,000
      --------------------------------------------------------------------------------------------------------------
      Net Worth (2)                                   $4,000,000       $12,000,000                        $8,000,000
      --------------------------------------------------------------------------------------------------------------
      Pre-Tax Income                                  $750,000
      --------------------------------------------------------------------------------------------------------------
      Net Income (3)                                                                     $100,000 (4)
      --------------------------------------------------------------------------------------------------------------
      Public Float (Shares)                           500,000          1,000,000         500,000          1,000,000
      --------------------------------------------------------------------------------------------------------------
      Market Value of Float                           $3,000,000       $15,000,000       $1,500,000       $2,000,000
      --------------------------------------------------------------------------------------------------------------
      Bid Price (5)                                   $5               $3 (6)            $3               $1 (6)
      --------------------------------------------------------------------------------------------------------------
      Public Beneficial Holders                       800/400 (7)      400               500              500
      --------------------------------------------------------------------------------------------------------------
      Operating History                                                3 years           3 years
      --------------------------------------------------------------------------------------------------------------
      Audit Committee                                 Yes              Yes               Yes              Yes
      --------------------------------------------------------------------------------------------------------------



1. Net tangible assets means the amount of funds remaining after deducting intangible assets (including goodwill) from stockholders' equity.

2. Net worth means total assets (excluding goodwill) less total liabilities.

3. Net income excludes non-recurring and extraordinary items.

4. The issuer must meet the $100,000 net income requirement which excludes non-recurring and extraordinary items in the past fiscal year, two
of the past three fiscal years, or have total net tangible assets of $2,500,000.

5. For securities that are already publicly traded, the qualifying bid price must have been held for the majority of the most recent six month
period prior to, and at the date of application.

6. To be considered for listing under Tier I, an IPO must have an offering price of at least $5 and to be considered for a Tier II listing, an IPO
must have an offering price of at least $3.

7. 800 beneficial holders if the issuer has between 500,000 and 1,000,000 shares publicly held, or 400 beneficial holders if the issuer has either:

o More than 1,000,000 shares publicly held

o More than 500,000 shares publicly held and average daily volume in excess of 2,000 shares for the six months preceding the date of the
application

Summary of principal continued listing requirements for common stock:
                        --------------------------------------------------------------------------------
                                                      Tier I                                 Tier II
                        --------------------------------------------------------------------------------
                        Net tangible assets                                                  $500,000
                        --------------------------------------------------------------------------------
                        Net worth                     $2,000,000 or $4,000,000*              $2,000,000
                        --------------------------------------------------------------------------------
                        Pre-tax income
                        --------------------------------------------------------------------------------
                        Net income
                        --------------------------------------------------------------------------------
                        Public float (shares)         200,000                                300,000
                        --------------------------------------------------------------------------------
                        Market value of float         $1,000,000                             $500,000
                        --------------------------------------------------------------------------------
                        Bid price**                   $3                                     $1
                        --------------------------------------------------------------------------------
                        Public beneficial holders     400 or at least 300 holders of 100     250
                                                      shares or more
                        --------------------------------------------------------------------------------
                        Corporate governance          Yes                                    Yes
                        --------------------------------------------------------------------------------


                                                                          31
*$2,000,000 if issuer has sustained losses from continuing operations and/or net losses in two of the last three fiscal years; or $4,000,000 if the
issuer has sustained losses from continuing operations and/or net losses in three of the four last fiscal years.

**In accordance with Pacific Exchange/ArcaEx rules, Pacific Exchange/ArcaEx may waive the minimum share price requirements based on
consideration of market conditions, the issuer's capitalization, the number of outstanding and publicly held shares and any other factors that
PCX considers appropriate.

                                                                  Our Strategy

We have implemented the following strategies to position the business to capture additional revenue in the federal information technology and
business continuity markets:

o Maintain and expand our existing client relationships. We maintain relationships with our existing clients by adhering to our culture of
respect and providing exceptional performance. We believe this helps us win renewals of our engagements. In addition, we use our knowledge
of our clients' needs to identify additional opportunities and cross-sell new services to them. Paradigm believes that its customer focus is the
foundation of its success to date. This focus is critical for the creation of long-term value. The Company does not intend to compromise its
customer focus, nor any of its core values for short-term economic gain.

o Leverage our existing client base to win new clients. We believe satisfied clients are one of our most effective marketing tools. The Federal
Acquisition Streamlining Act (FASA) of 1994 simplified the federal acquisition process by removing all restrictions on purchases less than
$100,000. Since FASA 94 went into effect, client referrals have become a crucial component of this expedited procurement process on small
federal opportunities within our existing client base. Since we focus on technology infrastructure improvement, we are able to transfer our
skills readily from client to client. We plan to continue building a network of clients and leveraging these relationships to gain access to new
clients. We also plan to build our relationships with other systems integrators, so that we can expand our partnership opportunities (both prime
and subcontractor) for future business. We believe that favorable client referrals are strategically important to our winning these opportunities.

o Strategic acquisitions. Currently, we have no pending acquisitions planned. In the future, we plan to pursue acquisitions that will position us
with strategically important technical skills for our existing federal customers, access to new federal clients and agencies, and expand our
geographical reach. Our commercial acquisition strategy will focus on selective regional consulting firms with pre-existing customer
relationships and business development professionals in the business continuity space in addition to other support service companies who can
be effectively integrated into the Paradigm Solutions International business model. This future growth strategy will require the business to
secure the additional funds either through additional equity or debt financing.

o Strengthen Sales & Business Development Workforce. Add experienced sales professionals, consultants, and sales engineers in targeted
federal agencies and commercial geographic markets. We anticipate the cash flow from operations and borrowings from the credit facility will
be sufficient to meet this need over the next twelve months.

o Organizational Development. Create an organizational culture that provides clear, consistent, and strategic leadership, incentives, and growth
opportunities for employees.

o Product Enhancement. Continue to enhance the product capabilities of the OpsPlanner(TM) software suite to deliver the most comprehensive,
easy-to-use continuity preparedness tools and risk management services for both federal and commercial customers. We anticipate the cash
flow from operations and borrowings from the credit facility will be sufficient to meet this need over the next twelve months.

Paradigm Solutions Corporation (PSC)

Paradigm Solutions Corporation is steadfast in its commitment to best practices in meeting changing requirements and providing cutting-edge
innovations to advance our client's mission. We focus on delivering high-quality information technology services on-time and within budget
through seamless transitions, program stability, and effective contract implementation and administration.

Government Reform is Driving Growth in Technology Spending

We believe that political pressures and budgetary constraints are forcing government agencies at all levels to improve their processes and
services and to operate more like commercial enterprises. Organizations throughout the federal, state and local governments are investing
heavily in information technology to improve effectiveness, enhance productivity and extend new services in order to deliver increasingly
responsive and cost-effective public services.

Changes over the mid to late 1990's in federal government contract procurement and compliance regulations have streamlined the government's
buying practices, resulting in a more commercial approach to the procurement and management of technologies and services. As a result,
procurement lead times have decreased and government buyers now have greater flexibility to purchase services on the basis of distinguishing

                                                                        32
corporate capabilities and successful past performance. Federal government entities are now able to award contracts based on factors other than
price alone, if they judge that the government would receive a greater value. In addition, the General Services Administration's (GSA)
extension of basic government-wide contract vehicles for procuring technology components and services, the GSA Schedules, makes
purchasing technology services easier and faster. Federal government buyers can now order services directly from pre-approved providers
instead of using a time-consuming bid solicitation process. Historically, these changes have improved our ability to expedite the procurement
of new business in the government market. There are currently no proposed changes to government procurement regulations that we believe
will materially affect our business in the immediate future.

Government's Need to Outsource Technology Programs

Government organizations rely heavily on outside contractors to provide skilled resources to accomplish technology programs. We believe that
this reliance will continue to intensify due to political and budgetary pressures in many government agencies and due to the difficulties facing
governments in recruiting and retaining highly skilled technology professionals in a competitive labor market. In concert with its transition to
more commercial practices, government is increasingly outsourcing technology programs as a means of simplifying the implementation and
management of the technology, so that government workers can focus on their mission.

Our Areas of Practice

We provide information technology services through two broad areas that address the needs and particular challenges of the evolving
government market. This includes infrastructure and software engineering support services.

Infrastructure Support Services

Paradigm Solutions provides comprehensive information technology infrastructure support services including design, implementation,
maintenance, and administration. We work with our clients to determine the best outsourcing solution to meet their requirements while
maximizing their return on investment. Our project managers and technical teams collaborate with our clients to define the scope, deliverables,
and milestones for each project. For example, to one of our Department of Treasury clients, we provide a full range of IT services such as
enterprise infrastructure support, network support, e-mail services, directory services, internet and intranet access and services, software
distribution and upgrades, disaster recovery services, help desk, LAN/WAN support and information assurance/computer network defense
services.

Infrastructure support services include all aspects of project planning, facilities build-out, implementation, and operations. Our services
encompass the following critical areas:
 ----------------------------------------------------------------------------------------------------------------------
                     Service / Solution                                             Description
 ----------------------------------------------------------------------------------------------------------------------
 Infrastructure Design and Implementation                     For network, mainframe and telecommunications
 environments
 ----------------------------------------------------------------------------------------------------------------------
 Service Center Solutions                                     Including 24/7 nationwide network support for mission
                                                              critical systems
 ----------------------------------------------------------------------------------------------------------------------
 Data Center Operations                                       Multiple 24/7 mainframe operations support for mission
                                                              critical systems
 ----------------------------------------------------------------------------------------------------------------------
 Network Operations Center Support                            Provide corrective and adaptive hardware support for
                                                              large Information Technology equipment including printers
                                                              and other peripheral systems.
 ----------------------------------------------------------------------------------------------------------------------
 Network Security and Management                              Including 24/7 nationwide network support for mission
                                                              critical systems in an windows environment
 ----------------------------------------------------------------------------------------------------------------------
 Desktop Support and Administration                           Managing and administration of network and application
                                                              security
 ----------------------------------------------------------------------------------------------------------------------
 Telecommunications                                           Tier I and II support for desktop and laptop computing
                                                              systems
 ----------------------------------------------------------------------------------------------------------------------
 Depot Maintenance                                            Communications support including switch installation and
                                                              implementation, phone support, cabling and routers.
 ----------------------------------------------------------------------------------------------------------------------
 Disaster Recovery Support                                    Receipt, repair and distribution of Personal Computers
 ----------------------------------------------------------------------------------------------------------------------
 Information Security Solutions                               Leverage our Security Assessment towards building an
                                                              effective Information Security Program
 ----------------------------------------------------------------------------------------------------------------------
 Database Administration                                      Maintenance, administration, and engineering of
                                                              Infrastructure support databases
 ----------------------------------------------------------------------------------------------------------------------


                                                                        33
Paradigm manages projects proactively with aggressive risk management, complete planning, and continual status reporting to ensure project
success. We employ automation, management, and administration tools through strategic partnerships with innovative vendors. These
partnerships provide our clients with readily accessible solutions that meet their critical needs in a timely and cost-effective manner.

Software Engineering Support Services

With many years of experience in software, systems, and database design and development for numerous clients, Paradigm Solutions has
developed the expertise and methodologies required to provide software engineering support services for all phases of the development
lifecycle. Our software engineering experts are available to augment an existing development team or support outsourcing of any portion of a
development effort. For example, for one of our Department of Housing and Urban Development clients, we are responsible for change request
initiation and identification, independent testing, regression testing, security evaluation, solution and impact analysis, quality assessment,
change request implementation, configuration management, user acceptance testing, solution acceptance and solution installation.

Software engineering support services consist of new development, maintenance and support, as well as migration of legacy systems to modern
platforms. Our services encompass the following critical areas:
----------------------------------------------------------------------------------------------------------------------
                Service / Solution                                             Description
----------------------------------------------------------------------------------------------------------------------
Requirements Engineering                            Provide full spectrum of Requirements Analysis utilizing best
                                                    commercial practices including COTS products. Basis for all
                                                    re-engineering and maintenance software activities.
----------------------------------------------------------------------------------------------------------------------
Configuration Management                            Provide CM support for customer base and internal software
                                                    engineering activities to ensure version control for SW and
                                                    documentation
----------------------------------------------------------------------------------------------------------------------
Software Quality Assurance                          Provide complete spectrum of Testing on software development
                                                    solutions including, unit test, end to end test, regressions
                                                    testing. Utilize host of COTS products to accomplish internal and
                                                    external mandated testing requirements.
----------------------------------------------------------------------------------------------------------------------
Independent Verification and Validation             Provide IV&V for customer for companies developing new products to
                                                    be integrated into customer production site.
----------------------------------------------------------------------------------------------------------------------
Application Development for Web, Client/Server,     Full Software Development Life Cycle (SDLC) for all aspects of
and Mainframe Platforms                             application support. Technologies include, but not limited to:
                                                    Visual Basic, J2EE, Powerbuilder, .NET, HTML, Java Script.
----------------------------------------------------------------------------------------------------------------------
Legacy Systems Migration and Data Conversion        Converting legacy systems to meet customer based Enterprise
                                                    Architecture requirements. Some conversions include IBM CICS COBOL
                                                    to J2EE, Powerbuilder to J2EE.
----------------------------------------------------------------------------------------------------------------------
Database Design and Development                     Design and engineering of databases for applications development.
----------------------------------------------------------------------------------------------------------------------
Data Warehousing and Data Mining                    Implementation of data warehouses for multiple clientele
----------------------------------------------------------------------------------------------------------------------
Application Security                                Engineering of security is wrapped into corrective, adaptive and
                                                    perfective application development efforts.
----------------------------------------------------------------------------------------------------------------------



Our seasoned project managers and experienced technical teams collaborate with our clients to define the scope, deliverables, and milestones
for each project to ensure our clients' expectations are realized. Our project managers ensure projects stay on track using aggressive risk
management and iterative planning, with continuous status reporting to our clients.

Help Desk Support

Challenge: Develop and implement a more efficient, responsive, and better managed computer support system.

Results: As essential personnel, our staff operates the client Help Desk 24/7. Computer support had been conducted originally by customer
personnel without a massive call center, tracking system, or call response procedures. Paradigm's program manager reviewed the method in
which computer support was being provided and recommended a full-fledged Help Desk operated by highly-technical contractor support staff
capable of providing onsite 24/7 support to all headquarters and field office personnel. A year after implementation of the new Help Desk call
center with support being provided by both customer and Paradigm personnel, the customer recognized Paradigm's success in operating the
Help Desk by entrusting the team with more high-level responsibility and reducing the original contractor-to-federal employee ratio for
operating the Help Desk. The Help Desk is now fully staffed by Paradigm, and the support has expanded to include mainframes, some

                                                                      34
accounting and human resource system support, and support for other secret information. Using Front Range System's HEAT, Paradigm
records an average of 1,600 help desk specific calls per month. Many of these calls are resolved over the phone through providing step-by-step
instruction or through remote access to the user's workstation. Calls that cannot be resolved over the phone are assigned to other support groups
for resolution or to outside contractors to resolve user issues. Our use of the Front Range System has been so effective that Front Range
describes our process as part of their marketing promotion of best use of the system. Within the first year, Paradigm's control of the Help Desk
saved the customer more than $2 million.

Data Warehousing

Challenge: Develop and implement a data mart to replace the existing, but limited, HR system.

Results: Paradigm maintains a centralized data warehouse that supports a customer base extending to 2,800+ users. Overall, as a result of the
procedures and practices that Paradigm employees (staff of 4) have established, the daily operation of the data warehouse has significantly
improved data integrity and availability. A specific task entailed developing a data mart to support the HR department, one that needed to
outperform existing, but limited, data marts. Because Paradigm's time-tested methodology and carefully-documented development process
ensured no steps would be omitted, we could guarantee the quality of the finished product. The process included extensive requirements
analysis, data modeling, data collection, data mart construction, prototyping, testing, and other carefully documented steps. Paradigm rolled out
a solution so beneficial to the customer's work environment that the customer requested a number of other data marts to meet their information
needs. We followed up by delivering a personal benefits data mart, accessible through an intranet, that replaced the customer's manual method,
which had inherent security risks as well as other problems. This follow-on project was accomplished in 1 1/2 months.

Disaster Recovery - Mainframe Support

Challenge: Establish secure telecommunications from the customer's headquarters and mirror the server and all headquarters services at an
undisclosed location to support continuity of operations in the case of a national disaster.

Results: The Paradigm team devised a mode of operation and established the telecommunications lines for full control of the remote site.
Within the context of two sites, we control what is done at site A from site B, without human hands-on intervention. The Paradigm Team
transfers data daily and ensures that if one server is shut down, the remote server will pick up and continue all activity in a seamless manner.
Paradigm saved the customer money and resources by establishing secure telecommunications from headquarters without the need for
personnel to be positioned at both sites as had been the case previously.

Existing Contract Profiles

We currently have a portfolio of more than 27 active contracts. Our contract mix for the year ended December 31, 2004 was 52% fixed price
contracts, 29% time and materials contracts, and 19% cost-plus contracts.

Under a fixed price contract, the contractor agrees to perform the specified work for a firm fixed price. To the extent that actual costs vary from
the price negotiated we may generate more or less than the targeted amount of profit or even incur a loss. We generally do not pursue fixed
price software development work that may create material financial risk. We do, however, execute some fixed price labor hour and fixed price
level of effort contracts which represent similar levels of risk as time and materials contracts. The substantial majority of these fixed price
contracts involve a defined number of hours or a defined category of personnel. We refer to such contracts as "level of effort" contracts.

Under a time and materials contract, the contractor is paid a fixed hourly rate for each direct labor hour expended and is reimbursed for direct
costs. To the extent that actual labor hour costs vary significantly from the negotiated rates under a time and materials contract, we may
generate more or less than the targeted amount of profit.

Cost-plus contracts provide for reimbursement of allowable costs and the payment of a fee which is the contractor's profit. Cost-plus fixed fee
contracts specify the contract fee in dollars or as a percentage of allowable costs. Cost-plus incentive fee and cost-plus award fee contracts
provide for increases or decreases in the contract fee, within specified limits, based upon actual results as compared to contractual targets for
factors such as cost, quality, schedule and performance.

Our historical contract mix is summarized in the table below.
                              Contract Type                                    2004            2003            2002
                              -------------                                    ----            ----            ----
                        Fixed Price (FFP)                                       52%             57%              54%
                        Time and Materials (T&M)                                29%             31%              45%
                        Cost-Plus (CP)                                          19%             12%               1%


                                                                        35
Listed below are our top programs by 2004 revenue, including single award and multiple award contracts. We are a prime contractor on each of
these programs.

                                                Top Programs /Contracts by 2004 Revenue
                                                             ($ in millions)
                                                                                                         Estimated
                                                                                                         Remaining
                                                                                                          Contract
                                                                           Period of          2004       Value as of       Contract
  Programs                             Customer                            Performance      Revenue       12/31/04          Type
  --------                             --------                            -----------      -------       --------          ----
  Long Term Maintenance of             Department of Treasury - IRS
  Computing Center                                                          6/01 - 4/06     $ 18.2             $ 9.9         FFP
  Alcohol, Tobacco & Firearms          Department of Justice               2/02 - 2/07        10.6              18.6         CP
  Community Planning &                 Housing and Urban
  Development                          Development                          3/03 - 3/07        7.0              19.7         FFP
  United States Secret Service         Department of Homeland
                                       Security                             9/99 - 10/05       5.0               4.5         T&M



Description of Major Programs / Contracts:

Department of the Treasury - Internal Revenue Service, Long Term Maintenance of Computing Centers (LTMCC)

Paradigm provides computing center hardware maintenance and software administration support to the IRS main Tax Reporting Systems in
Detroit, Michigan and Martinsburg, West Virginia. At the IRS Detroit Computing Center (DCC), Paradigm currently responds to hardware
remedial and preventive maintenance and we administer the software that resides on the IBM z990, 2084-302 mainframe. Paradigm's staff of
technicians supports the Enterprise Computing Center at Martinsburg more than 1425 IBM/IBM compatible peripherals and higher
maintenance items in place at the IRS that include sophisticated tape drives, monitors, and printers. We have established a technical support
center to resolve problems on a 24x7x365 basis.

                                    Department of Justice - Alcohol Tobacco, Firearms and Explosives

Paradigm provides software development and corrective, perfective and adaptive software maintenance services in support of the Tax and
Trade Bureau tax collection mission. Paradigm's staff utilizes JAVA J2EE and Swing technologies along with the Oracle 9i suite consisting of
Forms, Reports, Discoverer, Designer application server and Database. Paradigm also maintains legacy applications developed in
PowerBuilder. The staff is responsible for supporting the full Systems Development Life Cycle utilizing a variety of industry best-of-breed
tools including Caliber-RM Requirements Management, Serena PVCS Configuration Management, JDeveloper and the Mercury Test suite.

                            Housing and Urban Development - Community Planning and Development (CPD)

Paradigm provides Corrective, Adaptive and Re-engineering software development services in support of CPD's Grants Management Systems.
This includes upgrades, minor enhancements and legacy system migration to HUD's enterprise architecture. Software engineering services
include J2EE, Powerbuilder, Cobol CICS II and Visual Basic with SQL Server, DB2 and Oracle backends.

                                 Department of Homeland Security - United States Secret Service (USSS)

Paradigm provides a technically sound and cost-effective Facilities Management environment with emphasis placed on quality services to
support the USSS's critical mission. Paradigm staff provides IBM 7060-H50 Mainframe, EMC disk storage, and StorageTek tape silo
Mainframe Hardware and Computer Operations Support. The Paradigm Team also provides OS-390 Systems Programming, WAN/LAN
Administration, Database Administration of Oracle and CA-IDMS databases, Help Desk support utilizing Front Range System's HEAT Help
Desk Suite CA-IDMS Software Development, and Business Continuity Planning services.

                                                                      36
Backlog

Backlog is our estimate of the amount of revenue we expect to realize over the remaining life of awarded contracts and task orders we have in
hand as of the measurement date. Our total backlog consists of funded and unfunded backlog. We define funded backlog as estimated future
revenue under government contracts and task orders for which funding has been appropriated by Congress and authorized for expenditure by
the applicable agency, plus our estimate of the future revenue we expect to realize from our commercial contracts. Unfunded backlog is the
difference between total backlog and funded backlog. Unfunded backlog reflects our estimate of future revenue under awarded government
contracts and task orders for which either funding has not yet been appropriated or expenditure has not yet been authorized. Our total backlog
does not include estimates of revenue from government-wide acquisition contracts, or GWAC contracts, or General Services Administration, or
GSA, schedules beyond awarded or funded task orders, but our unfunded backlog does include estimates of revenue beyond awarded or funded
task orders for other types of indefinite delivery, indefinite quantity, or ID/IQ, contracts.

Our total backlog as of June 30, 2005 was approximately $114 million, of which approximately $33 million was funded as compared to
approximately $91 million, of which approximately $24 million was funded, as of June 30, 2004. However, there can be no assurance that we
will receive the amounts we have included in our backlog or that we will ultimately recognize the full amount of our funded backlog as of June
30, 2005 that we estimate will be recognized as revenue during fiscal 2005 or thereafter.

We believe that backlog is not necessarily indicative of the future revenue that we will actually receive from contract awards that are included
in calculating our backlog. We assess the potential value of contracts for purposes of backlog based upon several subjective factors. These
subjective factors include our judgments regarding historical trends (i.e., how much revenue we have received from similar contracts in the
past), competition (i.e., how likely are we to successfully keep all parts of the work to be performed under the contract) and budget availability
(i.e., how likely is it that the entire contract will receive the necessary funding). If we do not accurately assess each of these factors, or if we do
not include all of the variables that affect the revenue that we recognize from our contracts, the potential value of our contracts, and
accordingly, our backlog, will not reflect the actual revenue received from contracts and task orders. As a result, there can be no assurance that
we will receive amounts included in our backlog or that monies will be appropriated by Congress or otherwise made available to finance
contracts and task orders included in our backlog. Many factors that affect the scheduling of projects could alter the actual timing of revenue on
projects included in backlog. There is always the possibility that the contracts could be adjusted or cancelled. We adjust our backlog on a
quarterly basis to reflect modifications to or renewals of existing contracts.

Competitive Analysis

We operate in markets that are highly competitive and include a large number of participants. We compete with many companies, both large
and small, for our contracts. We do not have a consistent number of competitors against whom we repeatedly compete. If we anticipate that our
combined resources may create a competitive advantage, we may team with other companies to perform work under contracts. These and other
companies in our market may compete more effectively than we can because they are larger, have greater financial and other resources, have
better or more extensive relationships with governmental officials involved in the procurement process and have greater brand or name
recognition.

PSC also competed with businesses under the Small Business Administration (SBA)
8(a) Business Development Program, named for a section of the Small Business Act. This business development program was created to help
small disadvantaged businesses compete in the American economy and access the federal procurement market. PSC utilized this program to
access the federal marketplace in October of 1995 and graduated from the program in October of 2004. The term "graduate" is used to refer to a
Participant's exit from the 8(a) BD Program at the expiration of the Participant's term. This program, allowed the business to build a base of
business with various federal civilian agencies. Currently, we have a backlog of business that will continue under this program until the
contracts end after which we will pursue several avenues to maintain the businesses we believe are important to our strategy in this
marketplace. This includes either migrating this work to other government contract vehicles if allowed by the customer or taking on a
subcontractor role when the business comes up for re-compete and teaming with a SBA business who would be the prime contractor.

As a result of the diverse requirements of the Federal Government and our commercial clients, we frequently form teams with the companies in
our markets in order to compete for large procurements, while bidding against them in other situations.

In each of our practice areas, we generally bid against companies of varying sizes and specialties, from small businesses to multi-billion dollar
corporations. Because of the current industry trend toward consolidation, some of these companies may emerge better able to compete with us.
Therefore, it is essential that we differentiate ourselves from these companies. We believe that our technical abilities, client relationships, past
performance, cost containment, reputation and ability to provide quality personnel give us a strong presence in the markets we serve. In
addition, we believe that our culture of respect for and commitment to our clients and business partners greatly aids our business.

While we believe these factors help to set us apart from other companies in our markets, we may not be able to continue to maintain our
competitive position, as new companies enter the marketplace and alliances and consolidations among competitors emerge. Some companies in
our markets have longer operating histories, greater financial and technological capabilities, greater brand or name recognition and/or larger
client bases than we have.

                                                                          37
Business Development Summary

Paradigm Solutions Corporation's business development plans include the following:

o Implementation of a highly structured approach to federal opportunity identification, qualification and capture.

o Rapid solutions integration and prototyping through the Company's Innovation Center for Excellence (iCenter) to meet federal customers'
highly specific requirements.

o Additional sales force based on Paradigm's federal core competencies and client needs in specific application areas.

o Enhanced pool of subject matter experts in the application areas of Enterprise Resource Planning (ERP), Enterprise Applications (EA), and
Call Center technology.

o Leveraging iCenter subject matter expert's role in business development to increase contract award and shorten bid response times.

o Implementation of Level 2 CMMI processes to increase contract award opportunities.

iCenter

The Innovation Center of Excellence (iCenter) is a corporate initiative focused on providing reliable, practical, and innovative technical
solutions to Paradigm and its clients. The iCenter is a leading-edge technology facility located at Paradigm Headquarters. It maintains an
independent computing infrastructure specifically designed to accommodate research and development activities for current and future client
needs, with emphasis on rapid prototyping and product demonstrations.

The iCenter has identified Areas of Excellence in which to develop its core competencies based on their strategic importance to Paradigm and
its clients. Our iCenter engineers keep current with technology trends and best practices through advanced training, professional certifications,
and cross-training.

Technical Areas Of Interest Include:

o Remote Systems Management

o Network Architecture

o Network Operations and Management

o Project Management

o Training and Seminars

o Software Development Methodologies

o Software Quality Assurance and Metrics

o Help Desk Technology and Best Practices

o Wireless Technologies

o Information Security

Paradigm Solutions International (PSI)

Paradigm Solutions International is our newly formed subsidiary of Paradigm Holdings, Inc., incorporated in December of 2004, engaged in
the development and delivery of continuity and information technology security/risk management services. The focus is on improving the ways
commercial businesses prepare to respond to and recover from "all hazard" interruptions to their operations. PSI's innovations in business
continuity development, planning, and information technology security will position it as a leader in the fragmented Business Continuity and
Continuity of Operations industry.

                                                                        38
OpsPlanner(TM) software, which was released in 2005, was developed to be the first completely integrated logical system for the preparation
for, management of, and continuous improvement of an organization's ability to withstand and recover from "all hazards" to their operations.
The purpose of Business Continuity Planning (BCP) is to enable organizations to prepare for emergencies and disruptions such as natural
disasters from hurricanes and floods as well as blackouts, fires, terrorist attacks and cyber attacks. Crisis Management is a related discipline
that deals with real-time management of emergencies and recovery from damage. These business practices have received a great deal of
attention following the 911 terrorist attacks on the U.S. In fact, the 911 Commission has explicitly stressed the need for BCP as a key aspect of
private sector preparedness.

Several vendors provide a variety of products to help organizations with BCP and crisis management. Such products fall into the following
categories:

1. Risk Assessment and Business Impact Analysis: Enables the process of understanding risks and assessing impact of potential disruptions.

2. BCP: Makes creation and update of BC (Business Continuity) plans productive and efficient.

3. Incident Management: Puts BCP into action during emergencies and tracks progress against plans.

4. Crisis Communication: Used to mobilize and communicate with emergency teams during a crisis.

Collectively, these categories form the Business Continuity market. Increasingly, vendors are offering products that integrate one or more of
the above categories into a single package. Paradigm Solutions International is in the forefront of this trend having understood this need prior to
the beginning of development.

Market Drivers

During the last year, several factors have combined to greatly increase awareness of the need for good information technology Risk and
Business Continuity Management (BCM). These factors are outlined as follows:

o Increased regulatory requirements (Sarbanes-Oxley (SOX), corporate governance).

o Improved overall risk management, as in the emergence of enterprise risk management.

o The recent blackouts in several cities have almost certainly acted as the most significant catalysts outside financial services, the public sector
and those areas immediately affected by the events of September 11, 2001.

o The continued threat of terrorism.

o Employee errors and sabotage.

o Cyber attacks.

o Homeland Security Commission 911 Report standardization on how to measure preparedness and NFPA 1600 Requirements from credit
companies and insurance agencies that help companies prepare for insurance requirements.

o Demands from large enterprises that their supply chain suppliers have business continuity plans in place as a prerequisite for doing business.

o Natural disasters like hurricanes, floods and tornados.

Product/Service(s) Description

OpsPlanner (TM) Business Continuity / Emergency Management and Notification Software

Plan Manager: Business Continuity Planning makes the creation, maintenance, and update of plans productive and efficient.

Recovery Manager: Helps organizations activate their plans in an emergency and track their recovery against the plans. Included in this module
is the notification feature which is used to mobilize and communicate with emergency teams, suppliers, employees and government agencies
during a crisis.

                                                                         39
Business Continuity and Information Technology Security Professionals

o Full-time Certified Business Continuity Professionals (CBCPs).

o Certified Network and Security Consultants/Engineers (CISSP, Security+, etc.).

Paradigm Solutions International currently utilizes outside consultants and strategic partners to provide our Business Continuity services. We
believe combining our partner's qualifications and service delivery expertise with our OpsPlanner software capabilities allows us to offer a
complete solution to our clients. The utilization of outside resources ensures the Company makes a profit on service delivery, while effectively
allowing the company to predict expenses and eliminate unproductive consultant labor. When our service delivery backlog is sufficient,
Paradigm Solutions International will explore hiring full-time internal consultants. We may also explore potential acquisitions of BCP service
providers, who already have an established clientele and backlog.

Business Continuity Planning Services

o Plan Audit, Risk Assessment, and Business Impact Analysis.

o Continuity Plan Development and Testing.

o Organizational Awareness and Improvement.

o Evaluation of Required Application Systems and Services.

o Workflow Analysis.

Information Technology Security Offerings

o Objective Information Technology Security Vulnerability Assessment.

o Information Technology Security Program and Policy Development.

o Information Technology Security Solution Implementation and Integration.

Competitive Analysis

Paradigm Solutions International faces competition from a small number of software vendors that are not as well capitalized as Paradigm
Holdings Inc. Due to the integrated nature of the OpsPlanner(TM) software suite, we also face competition from notification vendors and
emergency management software companies that compete against part of our software solution. In the area of business continuity services, we
compete against large companies such as IBM, Bearing Point and others. In most cases, our services are competitively priced to allow PSI to
act either independently or as a subcontractor to these large competitors.

Business Development Summary

Paradigm Solutions International's business development plans include the following:

o Recruit, train, and deploy a highly motivated, professional business development team.

o Selectively add sales and professional delivery resources, deployed in a broader geographic area.

o Achieve rapid growth through organic growth and strategic acquisitions.

o Remain deep and narrow in service offerings.

o Place Paradigm Solutions International offices in key US Cities.

o Continue to focus its efforts for marketing, sales and service delivery within the following geographic areas:

o Mid-Atlantic states

o Eastern seaboard states

                                                                       40
o Disaster-prone locations: Florida, Texas, California, etc.

o High concentration of population and targeted vertical market organizations in the following cities: Washington, Baltimore, New York,
Philadelphia, Pittsburgh, Atlanta, Boston, Dallas, Los Angeles, Chicago.

o Increase the number of vendor channel partnerships.

Culture, People and Recruiting

We have developed a corporate culture that promotes excellence in job performance, respect for the ideas and judgment of our colleagues, and
recognition of the value of the unique skills and capabilities of our professional staff. We seek to attract highly qualified and ambitious staff.
We strive to establish an environment in which all employees can make their best personal contribution and have the satisfaction of being part
of a unique team. We believe that we have successfully attracted and retained highly skilled employees because of the quality of our work
environment, the professional challenge of our assignments, and the financial and career advancement opportunities we make available to our
staff.

We occupy state-of-the-art facilities that are conducive to highly technical and collaborative work, while providing individual privacy. In our
Innovation Center, we configure leading-edge equipment and software, and provide our engineers and developers with advanced tools to
evaluate and apply new technologies.

As of June 30, 2005, we had 310 personnel (full time, part time, and consultants). Of our total personnel, 273 were Paradigm Solutions
Corporation IT service delivery professionals and consultants, and 38 were management and administrative personnel performing corporate
marketing, human resources, finance, accounting, legal, internal information systems and administrative functions. None of our personnel is
represented by a collective bargaining unit.

Website Access to Reports

Our filings with the U.S. Securities and Exchange Commission (the "SEC") and other information, including our Ethics Policy, can be found
on the Paradigm Solutions website (www.paradigmsolutions.com ). Information on our website does not constitute part of this report. We make
available free of charge, on or through our Internet website, as soon as reasonably practicable after they are electronically filed or furnished to
the SEC, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed
or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act of 1934.

                                                                        41
                                                               MANAGEMENT

Directors And Executive Officers

Our directors, executive officers and key employees as of September 30, 2005, are as follows:
       Name                       Age      Position with the Company                          Date First Elected or Appointed
       ----                       ---      -------------------------                          -------------------------------
       Raymond Huger              58       Chief Executive Officer,                           November 4, 2004
                                           Chairman of the Board of Directors
       Frank Jakovac              55       President, Chief Operating Officer                 November 4, 2004
       Richard Sawchak            31       Vice President, Chief Financial Officer            September 19, 2005
       Frank Ryan                 53       Director                                           November 30, 2004
       John A. Moore              52       Director                                           April 15, 2005
       Edwin Mac Avery            57       Director                                            April 15, 2005



Mark Serway served as Chief Financial Officer until his resignation from the company effective August 15, 2005.

Set forth below is a brief description of the background and business experience of each of our executive officers and directors for the past five
years:

Raymond A. Huger, Chief Executive Officer and Chairman of the Board - Ray has more than 30 years of experience in business management,
information technology, and sales/marketing and technical support services. He established Paradigm Solutions in 1991 following a very
successful 25-year career with IBM, beginning as a Field Engineer and holding a variety of challenging technical support, sales/marketing and
executive management positions. Prior to his early retirement from IBM, he was a Regional Manager, responsible for the successful operations
of several IBM Branch offices that generated over $500 million dollars in annual revenue. His experience and understanding of technology
allowed him to develop a solid business value propositions for Paradigm Solutions and its Paradigm Solutions International Division. Ray has a
Bachelor's Degree (BA) from Bernard Baruch College and a Master's Degree (MBA) from Fordham University.
                        Mr. Huger's Prior Five Year History:                   2004 - Present, Chairman & CEO,
                                                                               Paradigm Holdings, Inc.
                                                                               1991 - 2004, President & CEO,
                                                                               Paradigm Solutions Corporation



Frank J. Jakovac, President and Chief Operating Officer - Frank has over 25 years experience leading organizations through every phase of
their lifecycle:
from start-up to change and revitalization, to turnaround and accelerated growth. His background includes cross-functional expertise and
experience in areas including business development, leadership, management, corporate governance, and regulatory issues. Jakovac built a
highly successful entrepreneurial venture from start-up to $300 million in only four years and built another privately held venture from start-up
to $100 million in assets within five years. In addition, he has participated in successful mergers and restructuring ventures and has nurtured
working relationships with Fortune 500 CEOs, growth. His more recent successes include the founding of Adriatic Ventures in 1998 (which
commercialized and managed projects ranging from information technology to land development) and his tenure as president and CEO of Avid
Sportswear & Golf Corp. Jakovac graduated with a Bachelor of Science from Edinboro University and completed the Executive Extended
Master Program in Business Administration, University of Pittsburgh.
                        Mr. Jakovac's Prior Five Year History:                 2004 - Present, Chairman & COO,
                                                                               Paradigm Holdings, Inc.
                                                                               1998 - 2001, President & CEO,
                                                                               Adriatic Ventures, Inc.



Richard Sawchak, Vice President and Chief Financial Officer - Mr. Sawchak has extensive experience in financial management, corporate
financing and executing and integrating acquisitions in a public company environment. From September 2003 to September 2005, he served as
Director of Global Financial Planning & Analysis at GXS, Inc. At GXS, he was responsible for managing a global finance organization focused
on improving business performance. From August 2000 to August 2003, he was the Director of Finance and Investor Relations at Multilink

                                                                        42
Technology Corporation. He was instrumental in the company's successful IPO and eventual sale at a premium. Mr. Sawchak has also held
senior management positions at Lucent Technologies, Inc. and graduated in the top of his class from Lucent's financial leadership program. He
holds a Master's Degree from Babson College and a Bachelor's Degree in Finance from Boston College, where he graduated Summa Cum
Laude.
                        Mr. Sawchak's Prior Five Year History:                  2005 - Present, Vic President &
                                                                                Chief Financial Officer,
                                                                                Paradigm Holdings, Inc.
                                                                                2003 - 2005, Director of Global
                                                                                Financial Planning & Analysis,
                                                                                GXS, Inc.
                                                                                2000 - 2003, Director of Finance
                                                                                and Investor Relations,
                                                                                Multilink Technology Corporation



Francis X. Ryan, Board Member - Frank has over twenty years experience in managing public companies at the Executive level. Currently he
is President, F. X. Ryan & Assoc. Management Consulting firm specializing in turnarounds, workouts, crisis management, strategic planning,
and working capital management. He has extensive experience in business process redesign. Prior to joining the Paradigm Holdings Inc. board,
Mr. Ryan was the Central Command Special Operations Officer for Operation Enduring Freedom. Mr. Ryan has also been assigned to
SOCCENT and served in Afghanistan. Mr. Ryan is a highly regarded expert speaker in the fields of Corporate Governance and Sarbanes-Oxley
regulations. Mr. Ryan has held positions as Chief Operating Officer and Executive Vice President, and Chief Financial Officer for
manufacturers and high technology companies. Mr. Ryan currently serves as a board member for the following organizations: St. Agnes
Hospital, Baltimore, MD; Good Shepherd Center, Baltimore, MD, and Fawn Industries. Mr. Ryan received his M. B. A. Finance, from the
University of Maryland, and holds a B.S. Economics from Mt. St. Mary's College. Mr. Ryan is also holds a C. P. A. from the State of
Pennsylvania.

Mr. Ryan's Prior Five Year History: 1991 - Present, President, F.X.


                                                                Ryan & Associates

John A. Moore, Board Member - John has more than 30 years experience in public company management for information technology firms. He
is the former Executive Vice President and CFO of ManTech International and was directly involved in taking ManTech public in 2002 as well
as facilitating a secondary offering. John has extensive experience in strategic planning, corporate compliance, proposal preparation and pricing
and SEC reporting. John has a deep knowledge of federal government contracting and financial management. John has served on the Boards of
Directors for ManTech International (MANT) and GSE Systems Inc. (GVP). John is a current member of the Board of Advisors for the
University of Maryland's Smith School. Mr. Moore has an MBA from the University of Maryland and a B.S. in accounting from LaSalle
University.

Mr. Moore's Prior Five Year History: 1994 - 2003, EVP & CFO ManTech International Corporation

Edwin Mac Avery, Board Member - Mac has 30 years of diverse experience in leading organizations through every lifecycle phase: form
start-up to change and revitalization, to turnaround and accelerated growth. His background includes expertise in business development,
finance, capital management and regulatory issues. As the Managing Partner of Avery and Company, a client services firm specializing in
project design, management, funding, mergers and acquisitions, in the energy and technology sectors, he directed minerals leasing of over
50,000 acres of land in seven western states. Mac initiated or participated in oil and gas operations in six states with over 50 wells drilled. Mac
also represented US energy companies, from small area operators to majors, in over $40 million of divestitures, and mergers and acquisitions
activities. Mr. Avery has served as a corporate member on the Boards of Directors of the following corporations: TangibleData Inc.,
Duplication Technology Inc., Horizon Petroleum Corporation, Pioneer Resources, Inc. and Lincoln Investment Corporation.
                         Mr. Avery's Prior Five Year History:                    2002- 2004, Assistant to Vice
                                                                                 Chancellor, University of
                                                                                 Colorado
                                                                                 1999 - 2001, Corporate
                                                                                 Development Officer,
                                                                                 TangibleData, Inc.
                                                                                 1991 - 1999, Managing Partner,
                                                                                 Avery & Company



Mark Serway resigned from the Company effective August 15, 2005.

                                                                        43
Family Relationships

There are no family relationships between any of our officers or directors.

Directors

Our Board of Directors consists of seven (7) seats, of which, 5 have been filled as of August 16, 2005. Directors serve for a term of one year
and stand for election at our annual meeting of stockholders. Pursuant to our Bylaws, a majority of directors may appoint a successor to fill any
vacancy on the Board of Directors.

Term Of Office

Our directors hold office until the next annual meeting of the shareholders and until their successors have been elected and qualified. Our
officers hold office until their death, or until they shall resign or have been removed from office.

Committees Of The Board Of Directors

Currently, we have an Audit Committee and Compensation Committee. Our Audit Committee consists of Mr. Francis X. Rayan, Mr. John
Moore and Mr. Mac Avery, with Mr. Ryan serving as Chairman of the Audit Committee. Our Compensation Committee consist of Mr. Francis
X. Ryan, Mr. John Moore and Mr. Mac Avery, with Mr. Moore serving as the Chairman of the Compensation Committee.

Audit Committee Financial Expert

Mr. Francis X. Ryan is our Audit Committee financial expert.

Code Of Ethics

We adopted a Code of Ethics applicable to our Chief Executive Officer, Chief Financial Officer, Corporate Controller and certain other finance
executives, which is a "code of ethics" as defined by applicable rules of the SEC. Our Code of Ethics is attached to the accompanying
registration statement. If we make any amendments to our Code of Ethics other than technical, administrative, or other non-substantive
amendments, or grant any waivers, including implicit waivers, from a provision of our Code of Ethics to our chief executive officer, chief
financial officer, or certain other finance executives, we will disclose the nature of the amendment or waiver, its effective date and to whom it
applies in a Current Report on Form 8-K filed with the SEC.

Compliance With Section 16(a) Of The Securities Exchange Act

Section 16(a) of the Exchange Act of 1934 requires our executive officers and directors, and persons who beneficially own more than ten
percent of our equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Officers,
directors and greater than ten percent shareholders are required by SEC regulation to furnish us with copies of all Section 16(a) forms they file.
Based on information provided to Paradigm Holdings, we believe that all of the Company's directors, executive officers and persons who own
more than 10% of our common stock were in compliance with
Section 16(a) of the Exchange act of 1934 during the last fiscal year, except as follows: Form 3's for Messrs. Huger, Jakovac, Ryan, Serway,
Moore and Avery were not timely filed.

ITEM 10. EXECUTIVE COMPENSATION

The following table shows all the cash compensation paid by Paradigm Holdings, as well as certain other compensation paid or accrued, during
the fiscal years ended December 31, 2004, 2003 and 2002 to Paradigm Holdings' named executive officers. No restricted stock awards,
long-term incentive plan payouts or other types of compensation, other than the compensation identified in the chart below, were paid to these
executive officers during these fiscal years.

                                                                        44
                                                   SUMMARY COMPENSATION TABLE
                                                                Annual Compensation                   Long-Term Compensation
                                                     --------------------------------------------------------------------------------
                                                                                       Other                                   All
                                                                                       Annual   Restricted Option      LTIP   Other
                                                                                       Compen-    Stock       #/*    Payouts Compen-
  Name                Title                          Year      Salary        Bonus     sation    Awarded    SARs (#)   ($)    sation
  -----------------------------------------------------------------------------------------------------------------------------------
  Raymond Huger       Chief Executive Officer        2004      $384,243      $231,679      --        --        --        --         --
                      Chairmon of the Board of       2003      $250,193      $405,476      --        --        --        --         --
                      Directors                      2002      $219,702      $345,093      --        --        --        --         --

  Frank Jakovac(1)     President,                      2004    $181,365        $ 70,417
                       Chief Operating Officer         2003    $     --        $     --       --          --         --        --         --
                       and Director                    2002    $     --        $     --       --          --         --        --         --
  Mark Serway(2)       Former Senior Vice President,   2004    $196,150        $ 39,700       --          --         --        --         --
                       Chief Financial Officer         2003    $ 43,578        $ 5,600        --          --         --        --         --
                       and Director                    2002    $     --        $     --       --          --         --        --         --

  Harry M. Kaneshiro   Executive Vice President,       2004    $403,367        $181,995       --          --         --        --         --
                       Paradigm Solutions Corp.        2003    $500,913        $309,589       --          --         --        --         --
                                                       2002    $422,764        $270,090       --          --         --        --         --

  Samar Ghadry(3)      Former Senior Vice President,   2004    $497,929        $104,693       --          --         --        --         --
                       Paradigm Solutions Corp.        2003    $672,933        $136,802       --          --         --        --         --
                                                       2002    $571,123        $119,307       --          --         --        --         --




(1) Frank Jakovac was hired on May 11, 2004.

(2) Mark Serway resigned from the Company effective August 15, 2005.

(3) Samar Ghadry's employment with Paradigm Solutions Corporation ended effective as of April 1, 2005.

The following table contains information regarding options granted during the year ended December 31, 2004 to Paradigm Holdings' named
executive officer.

                                                        OPTION/SAR GRANTS TABLE
                                                                                            % Total
                                                                                          Options/SARs
                                                                                           Granted to
                                                                       No. of             Employees in
                                                                     Securities            year ended
                                                                     Underlying            December 31         Exercise or
                                                                    Options/SARs               2003             Base Price     Expiration
    Name                      Title                                 Granted (#)                 (%)            ($ per Share)      Date
    -------------------       ----------------------------          ------------          -------------        -------------   ----------
    Raymond Huger             Chief Executive Officer,                      --                    --                  --             --
                              and Chairman of the Board of
                              Directors


    Frank Jakovac             President,                                       --                  --                 --             --
                              Chief Operating Officer and
                              Director
    Mark Serway(1)            Former Senior Vice President,                    --                  --                 --             --
                              Chief Financial Officer and
                              Director

    Harry M. Kaneshiro        Executive Vice President                         --                  --                 --             --
                              Paradigm Solutions Corp.

    Samar Ghadry(2)           Former Senior Vice President                     --                  --                 --             --
                              Paradigm Solutions Corp.




(1) Mark Serway resigned from the Company effective August 15, 2005.

(2) Samar Ghadry's employment with Paradigm Solutions Corporation ended effective as of April 1, 2005.

                                                                          45
The following table contains information regarding options exercised in the year ended December 31, 2004, and the number of shares of
common stock underlying options held as of December 31, 2004, by Paradigm Holdings' named executive officer.

                                                 AGGREGATED OPTIONS/SAR EXERCISES
                                                       IN LAST FISCAL YEAR AND
                                                 FISCAL YEAR END OPTIONS/SAR VALUES
                                                                                   Number of Securities        Value of Unexercised
                                                                                  Underlying Unexercised           In-the-Money
                                                      Shares                          Options/SARs                 Options/SARs
                                                     Acquired                           at FY-End                   at FY-End
                                                        on         Value        --------------------------   --------------------------
                                                     Exercise    Realized           (#)                        ($)
                                                     --------    --------       ----------- -------------    ----------- -------------
     Name                          Title                (#)         ($)         Exercisable Unexcersiable    Exercisable Unexercsiable
     ------------------   -----------------------    --------    --------       ----------- -------------    ----------- -------------
     Raymond Huger        Chief Executive Officer,     --             --              --           --            --           --
                          Chairman of the
                          Board of Directors


     Frank Jakovac        President,                   --             --              --          --             --          --
                          Chief Operating
                          Officer And Director

     Mark Serway(1)       Former Senior Vice           --             --              --          --             --          --
                          President, Chief
                          Financial Officer
                          and Director

     Harry M. Kaneshiro   Executive Vice               --             --              --          --             --          --
                          President
                          Paradigm Solutions
                          Corp.

     Samar Ghadry(2)      Former Senior                --             --              --          --             --          --
                          Vice President
                          Paradigm Solutions
                          Corp.




(1) Mark Serway resigned from the Company effective August 15, 2005.

(2) Samar Ghadry's employment with Paradigm Solutions Corporation ended effective as of April 1, 2005.

Stock Option Grants In The Past Fiscal Year

None issued.

Employment Arrangements

Effective November 4, 2004, Raymond Huger and Paradigm Holdings entered into an Employment Agreement. Pursuant to the agreement, Mr.
Huger serves as Chief Executive Officer. The agreement has a term of three years and is renewable for additional terms of one (1) year unless
either party provides the other with notice at least ninety (90) days prior to the date the employment term would otherwise renew. Paradigm
Holdings can terminate the agreement by providing at least thirty (30) days' advance written notice to Mr. Huger. In the event that Paradigm
Holdings terminates the agreement, other than in connection with a change of control of Paradigm Holdings and other than for cause, Paradigm
Holdings is obligated to continue to pay Mr. Huger's base salary and benefits for a period that is the greater of: (i) the remainder of the initial
employment term or (ii) twelve (12) months from the date of termination. In addition, in the event Paradigm Holdings terminates the
agreement, other than in connection with a change of control or for cause, any and all options granted to Mr. Huger will become automatically
and immediately vested and exercisable. Under the agreement, Mr. Huger receives $395,200 in annual salary and is entitled to participate in
any health insurance, accident insurance, hospitalization insurance, life insurance, pension, or any other similar plan or benefit provided by
Paradigm Holdings to its executives or employees generally, including any stock option plan. Paradigm Holdings may terminate the
Employment Agreement at any time on or after November 4, 2004, by providing at least thirty
(30) days written notice to Mr. Huger. In the event that Paradigm Holdings terminates the Employment Agreement (a) other than in connection
with a change of control and (b) other than for cause, Paradigm Holdings shall, notwithstanding such termination, in consideration for all of the
undertakings and covenants of Mr. Huger contained in the Employment Agreement, continue to pay to Mr. Huger his base salary and the
regular benefits for a period that is the greater of (i) the remainder of the initial employment term or (ii) twelve
(12) months from the date of such termination. In addition, in the event Paradigm Holdings terminates the Employment Agreement as
described above, any and all options granted to Mr. Huger by Paradigm Holdings shall become automatically and immediately vested and
exercisable.

                                                                           46
Effective November 4, 2004, Frank Jakovac and Paradigm Holdings entered into an Employment Agreement. Pursuant to the agreement, Mr.
Jakovac serves as Chief Operating Officer. The agreement has a term of three years and is renewable for additional terms of one (1) year unless
either party provides the other with notice at least ninety (90) days prior to the date the employment term would otherwise renew. Paradigm
Holdings can terminate the agreement by providing at least thirty (30) days' advance written notice to Mr. Jakovac. In the event that Paradigm
Holdings terminates the agreement, other than in connection with a change of control of Paradigm Holdings and other than for cause, Paradigm
Holdings is obligated to continue to pay Mr. Jakovac's base salary and benefits for a period that is the greater of: (i) the remainder of the initial
employment term or (ii) twelve (12) months from the date of termination. In addition, in the event Paradigm Holdings terminates the
agreement, other than in connection with a change of control or for cause, any and all options granted to Mr. Jakovac will become
automatically and immediately vested and exercisable. Under the agreement, Mr. Jakovac receives $365,250 in annual salary and is entitled to
participate in any health insurance, accident insurance, hospitalization insurance, life insurance, pension, or any other similar plan or benefit
provided by Paradigm Holdings to its executives or employees generally, including any stock option plan. Paradigm Holdings may terminate
the Employment Agreement at any time on or after November 4, 2004, by providing at least thirty
(30) days' written notice to Mr. Jakovac. In the event that Paradigm Holdings terminates the Employment Agreement (a) other than in
connection with a change of control and (b) other than for cause, Paradigm Holdings shall, notwithstanding such termination, in consideration
for all of the undertakings and covenants of Mr. Jakovac contained in the Employment Agreement, continue to pay to Mr. Jakovac his base
salary and the regular benefits for a period that is the greater of (i) the remainder of the initial employment term or (ii) twelve
(12) months from the date of such termination. In addition, in the event Paradigm Holdings terminates the Employment Agreement as
described above, any and all options granted to Mr. Jakovac by Paradigm Holdings shall become automatically and immediately vested and
exercisable.

Effective November 4, 2004, Mark Serway and Paradigm Holdings entered into an Employment Agreement. Pursuant to the agreement, Mr.
Serway serves as Chief Financial Officer. The agreement has a term of three years and is renewable for additional terms of one (1) year unless
either party provides the other with notice at least ninety (90) days prior to the date the employment term would otherwise renew. Paradigm
Holdings can terminate the agreement by providing at least thirty (30) days' advance written notice to Mr. Serway. In the event that Paradigm
Holdings terminates the agreement, other than in connection with a change of control of Paradigm Holdings and other than for cause, Paradigm
Holdings is obligated to continue to pay Mr. Serway's base salary and benefits for a period that is the greater of: (i) the remainder of the initial
employment term or (ii) twelve (12) months from the date of termination. In addition, in the event Paradigm Holdings terminates the
agreement, other than in connection with a change of control or for cause, any and all options granted to Mr. Serway will become automatically
and immediately vested and exercisable. Under the agreement, Mr. Serway receives $315,175 in annual salary and is entitled to participate in
any health insurance, accident insurance, hospitalization insurance, life insurance, pension, or any other similar plan or benefit provided by
Paradigm Holdings to its executives or employees generally, including any stock option plan. Paradigm Holdings may terminate the
Employment Agreement at any time on or after November 4, 2004, by providing at least thirty
(30) days' written notice to Mr. Serway. In the event that Paradigm Holdings terminates the Employment Agreement (a) other than in
connection with a change of control and (b) other than for cause, Paradigm Holdings shall, notwithstanding such termination, in consideration
for all of the undertakings and covenants of Mr. Serway contained in the Employment Agreement, continue to pay to Mr. Serway his base
salary and the regular benefits for a period that is the greater of (i) the remainder of the initial employment term or (ii) twelve
(12) months from the date of such termination. In addition, in the event Paradigm Holdings terminates the Employment Agreement as
described above, any and all options granted to Mr. Serway by Paradigm Holdings shall become automatically and immediately vested and
exercisable.

Mark Serway resigned from the Company effective August 15, 2005.

On September 28, 2005, Mr. Sawchak and Paradigm Holdings entered into an Employment Agreement with an effective date of September 19,
2005. The agreement has a term of two years and is renewable for additional terms of one (1) year unless either party provides the other with
notice at least ninety (90) days prior to the date the employment term would otherwise renew. Paradigm Holdings can terminate the agreement
by providing at least thirty (30) days' advance written notice to Mr. Sawchak. In the event that Paradigm Holdings terminates the agreement,
other than in connection with a change of control of Paradigm Holdings and other than for cause, Paradigm Holdings is obligated to continue to
pay Mr. Sawchak's base salary and benefits for a period that is the greater of:
(i) the remainder of the initial employment term or (ii) twelve (12) months from the date of termination. In addition, in the event Paradigm
Holdings terminates the agreement, other than in connection with a change of control or for cause, any and all options granted to Mr. Sawchak
will become automatically and immediately vested and exercisable. Under the agreement, Mr. Sawchak receives $200,000 in annual salary and
is entitled to participate in any health insurance, accident insurance, hospitalization insurance, life insurance, pension, or any other similar plan
or benefit provided by Paradigm Holdings to its executives or employees generally, including any stock option plan.

Effective April 1, 2005, Samar Ghadry and Paradigm Solutions Corporation, a wholly-owned subsidiary of Paradigm Holdings, entered into a
Letter Agreement pursuant to which Ms. Ghadry and Paradigm Solutions Corporation agreed and acknowledged that Ms. Ghadry's
employment with Paradigm Solutions Corporation ended effective April 1, 2005. Pursuant to the terms of the Letter Agreement, Paradigm
Solutions Corporation agreed to pay Ms. Ghadry severance pay in an amount equal to Ms. Ghadry's base pay for nine months in accordance
with Paradigm Solutions Corporation's normal payroll practices. Paradigm Solutions Corporation agreed to pay Ms. Ghadry a bonus for the
first quarter of 2005 equal to $20,250. In addition, Paradigm Holdings agreed to register 1,575,000 shares of commons tock owned by Ms.
Ghadry in the accompanying registration statement. Further, Ms. Ghadry agreed that she will not, except with the prior written approval of

                                                                         47
Paradigm Holdings, engage in a disposition with respect to 100% of these shares until the earlier to occur of: (i) the date of the closing of a
financing through the sale of debt or equity securities in which Paradigm Holdings receives in one or a series of transactions gross proceeds in
an amount equal to at least $3 million or (ii) September 30, 2005. Ms. Ghadry also agreed that, when she is able to sell her shares of common
stock, that she will not sell more than 2,000 shares in any single business day; however, in the event the average daily volume of the shares of
Paradigm Holdings' common stock exceeds 10,000 shares for a period of 5 consecutive business days, Ms. Ghadry may sell up to an aggregate
of 4,000 shares per day, commencing on the first business day thereafter and continuing so long as the average 5-day daily volume continues to
exceed 10,000 shares. Ms. Ghadry and Paradigm Holdings agreed that, to the extent allowed by law and with the express written approval of
the President and Chief Operating Officer of Paradigm Holdings, Ms. Ghadry may sell her shares to a bona fide purchaser in a private
placement provided such purchaser agrees to be subject to the terms of the Letter Agreement. Ms. Ghadry was not employed by Paradigm
Solutions Corporation pursuant to a written employment agreement.

                                                                       48
                                                      DESCRIPTION OF PROPERTY

Our principal Paradigm offices are located at three locations: Our PDHO and PSC headquarters' location are at 2600 Tower Oaks Boulevard,
Suite 500, Rockville, Maryland 20852. This principal office consists of 14,318 square feet, with a monthly lease cost of $33,409 and is leased
until May 31, 2011. Our client office, which is in support of our HUD customer, is located at: 15th and H Streets, N.W., Washington, DC
20005. This principal office consists of 16,364 square feet, with a monthly lease cost of $35,210 and is leased until June 30, 2007. The third
office location, which is our PSI headquarters, is at 6110 Executive Boulevard, Suite 508, Rockville, Maryland, 20852, with a monthly lease
cost of $4,611 and is leased until July 31, 2006.

                                                                      49
                                                          LEGAL PROCEEDINGS

Paradigm is involved in litigation, both potential and actual, arising from a contractual agreement between Paradigm and Norvergence, Inc.
Paradigm entered into an agreement with Norvergence for the provision of telecommunication equipment and services in June, 2003. Under the
agreement, Norvergence promised to supply all of Paradigm's telecommunication needs for a period of 60 months for the sum of $2,152 per
month. Soon after executing the agreement with Paradigm, Norvergence sold a portion of the rights to those payments to a third party, CIT
Technology Financial Services, Inc. ("CIT"). In July, 2004, Norvergence was forced into bankruptcy by its creditors and, soon thereafter,
Paradigm's telecommunication services provided under the Norvergence agreement were terminated. Paradigm has taken the position that
Norvergence utilized fraud and deception to obtain the agreement from Paradigm and has ceased paying either Norvergence or CIT.

Paradigm has filed an unsecured claim in the Norvergence bankruptcy in the amount of $314,573 plus interest and attorney's fees. The claim is
based upon claims under the N.J.S.A. 56:8-1 et. seq. (which provides for treble damages), common law fraud and breach of contract. At this
juncture of the bankruptcy proceeding, it seems unlikely that Paradigm will recover a significant portion of its claim or any interest or
attorney's fees. Paradigm also has potential exposure to a lawsuit from CIT. Paradigm has calculated that it may be liable to CIT for the sum of
$59,300 plus interest and attorney's under the agreement assigned to CIT by Norvergence. CIT has not yet sued Paradigm, but has threatened to
do so. Paradigm intends to vigorously contest any suit against it by CIT. This potential liability was accrued for in 2004.

On May 27, 2005, the company received a settlement letter from the CIT Group concerning this matter which is a fully executed release from
this liability in the amount of $3,948. On June 24, 2005, the company finalized this settlement with CIT in the amount of $3,948.

                                                                      50
                                                    PRINCIPAL SHAREHOLDERS

Security Ownership Of Certain Beneficial Owners And Management

The following table sets forth information about the beneficial ownership of our common stock as of September 30, by (i) each person who we
know is the beneficial owner of more than 5% of the outstanding shares of common stock (ii) each of our directors or those nominated to be
directors, and executive officers, and (iii) all of our directors and executive officers as a group.
                                                                                  Amount and Nature
                                     Name and Address                               of Beneficial               Percentage
  Title of Class                     of Beneficial Owner                              Ownership             of Common Stock(1)
  --------------                     ----------------------------------           -----------------         ------------------
  Common Stock                       Raymond Huger                                    12,775,000                    63.87%
                                     2600 Tower Oaks Blvd.
                                     Suite 500
                                     Rockville, Maryland 20852
  Common Stock                       Harry Kaneshiro                                    3,150,000                    15.75%
                                     2600 Tower Oaks Blvd.
                                     Suite 500
                                     Rockville, Maryland 20852
  Common Stock                       Frank Jakovac                                              0                        0%
                                     2600 Tower Oaks Blvd.
                                     Suite 500
                                     Rockville, Maryland 20852
  Common Stock                       Frank Ryan                                                 0                        0%
                                     2600 Tower Oaks Blvd.
                                     Suite 500
                                     Rockville, Maryland 20852
  Common Stock                       John Moore                                                 0                        0%
                                     2600 Tower Oaks Blvd.
                                     Suite 500
                                     Rockville, Maryland 20852
  Common Stock                       Edwin MacAvery                                             0                        0%
                                     2600 Tower Oaks Blvd.
                                     Suite 500
                                     Rockville, Maryland 20852
  Common Stock                       All Directors and Executive
                                     Officers as a Group (Five Persons)                17,500,000                    87.49%
  Common Stock                       Samar Ghadry                                       1,575,000                     7.87%
                                     2600 Tower Oaks Blvd.
                                     Suite 500
                                     Rockville, Maryland 20852
  Common Stock                       Shortline Equity Partners, Inc.                      500,000                     2.49%
                                     8400 East Prentice Avenue
                                     Penthouse, Suite 1500
                                     Greenwood Village, CO 80111
  Common Stock                       J.P. Consulting                                    1,054,411                     5.27%
                                     6590 East Lake Place
                                     Centennial, CO 80111
  Common Stock                       Ultimate Investments Corp.                           607,939                     3.03%
                                     8400 East Prentice Avenue
                                     Penthouse, Suite 1500
                                     Greenwood Village, CO 80111
                                     Ultimate Investments Corp. and
                                     Shortline Equity Partners, Inc.
                                     together own 5.51%



(1) Applicable percentage of ownership is based on 20,003,368 shares of common stock outstanding as of September 30, 2005 together with
securities exercisable or convertible into shares of common stock within 60 days of August 16, 2005 for each stockholder. Beneficial

                                                                    51
ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities.
Shares of common stock subject to securities exercisable or convertible into shares of common stock that are currently exercisable or
exercisable within 60 days of September 30, 2005 are deemed to be beneficially owned by the person holding such options for the purpose of
computing the percentage of ownership of such person, but are not treated as outstanding for the purpose of computing the percentage
ownership of any other person.

                                                                      52
        CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None.

                              53
                                        MARKET PRICE OF AND DIVIDENDS
                     ON THE REGISTRANT'S COMMON EQUITY AND OTHER SHAREHOLDER MATTERS

Our common stock has been listed on the Over-the-Counter Bulletin Board sponsored by the National Association of Securities Dealers, Inc.,
maintained by NASDAQ, under the symbol "PDHO" since September 14, 2004, following our name change and a 1 for 85 reverse stock split.
The shares of Cheyenne Resources traded on the OTC BB under the symbol "CHYN" from January 2002 to July 2005. The following table
contains the reported high and low bid prices for the common stock as reported on the OTC BB for the periods indicated.

The following table sets forth the high and low bid prices for the common stock as reported on the Over-the-Counter Bulletin Board,
maintained by NASDAQ, for each quarter since January 2002 for the periods indicated. Such information reflects inter dealer prices without
retail mark-up, mark down or commissions and may not represent actual transactions.

The following table sets forth, for the period indicated, the bid price range of our common stock.
                        YEAR 2002                                                       High Bid           Low Bid
                        -----------------------------------------------                 --------           -------
                        Quarter   Ended   March 31, 2002                                 $   0.015         $0.0100
                        Quarter   Ended   June 30, 2002                                  $   0.016         $0.0071
                        Quarter   Ended   September 30, 2002                             $   0.025         $0.0070
                        Quarter   Ended   December 31, 2002                              $   0.007         $0.0005
                        YEAR 2003                                                       High Bid           Low Bid
                        -----------------------------------------------                 --------           -------
                        Quarter   Ended   March 31, 2003                                 $   0.005         $0.0010
                        Quarter   Ended   June 30, 2003                                  $   0.010         $0.0050
                        Quarter   Ended   September 30, 2003                             $   0.010         $0.0020
                        Quarter   Ended   December 31, 2003                              $   0.005         $0.0020
                        YEAR 2004                                                       High Bid           Low Bid
                        -----------------------------------------------                 --------           -------
                        Quarter   Ended   March 31, 2004                                 $   0.021         $0.0050
                        Quarter   Ended   June 30, 2004                                  $   0.012         $0.0070
                        Quarter   Ended   September 30, 2004                             $   0.035         $0.0060
                        Quarter   Ended   December 31, 2004                              $   05.00         $0.3500



On September 30, 2005, the closing price of our common stock as reported on the Over-the-Counter Bulletin Board, maintained by NASDAQ,
was $2.50 per share. As of September 30, 2005, we had in excess of 2,900 holders of common stock and 20,003,368 shares of our common
stock were issued and outstanding. Many of our shares are held in brokers' accounts, so we are unable to give an accurate statement of the
number of shareholders.

Dividends

We have not paid any dividends on our common stock and do not anticipate paying any cash dividends in the foreseeable future. We intend to
retain any earnings to finance the growth of the business. We cannot assure you that we will ever pay cash dividends. Whether we pay any cash
dividends in the future will depend on the financial condition, results of operations and other factors that the Board of Directors will consider.

Recent Sales Of Unregistered Securities

J. Paul Consulting Corporation, Shortline Equity Partners Inc. and Ultimate Investments Corporation subscribed for 10,000,000 shares of
Common Stock (post reverse split of one for eighty-five) for $200,000 cash on August 27, 2004. The transaction was exempt from registration
pursuant to section 4(6) of the Securities Act of 1933.

                                                                       54
Corporate Organization

On November 3, 2004, Paradigm Holdings, Inc., entered into an Agreement and Plan of Reorganization with Paradigm Solutions Merger Corp.,
a Delaware corporation and wholly-owned subsidiary of Paradigm Holdings (the "Merger Sub"), Paradigm Solutions Corporation, a Maryland
corporation and the shareholders of Paradigm Solutions Corporation. Pursuant to the Agreement and Plan of Reorganization, the Merger Sub
was merged with and into Paradigm Solutions Corporation, the surviving corporation and continues its existence under the laws of the State of
Maryland and is a wholly-owned subsidiary of Paradigm Holdings, Inc. In consideration of the Merger, the Paradigm Solutions Corporation
shareholders exchanged 13,699 shares of common stock of Paradigm Solutions Corporation, which was 100% of the issued and outstanding
capital stock of Paradigm Solutions Corporation, for 17,500,000 shares of common stock of Paradigm Holdings Inc.

Cheyenne Resources, Inc. was incorporated under the laws of the State of Wyoming on November 17, 1970. According to the securities filings
made by Cheyenne Resources' prior management, Cheyenne Resources, prior to the reverse merger with Paradigm Solutions Merger Sub,
operated principally in one industry segment, the exploration for and sale of oil and gas.

Cheyenne Resources held oil, gas, interests, producing, and selling oil and gas and other mineral substances. Cheyenne Resources did not
engage in refining or retail marketing operations; rather its activities had been restricted to acquiring and disposing of mineral properties, and to
producing and selling oil and gas from its wells.

Prior Principal activities of Cheyenne Resources involved buying leases, filing on federal and state open land leases as well as acquiring and
trading of oil, gas, and other mineral properties, primarily in the Rocky mountain area and Oklahoma.

Cheyenne Resources oil and gas activities included the acquisition of whole or partial interests in oil and gas leases and the farming out or
resale of all or part of its interests in these leases. In connection with farmouts and resales, Cheyenne Resources attempted to retain an
overriding royalty or a working or carried interest.

In 1999, Cheyenne Resources entered into a memorandum of understanding to obtain a 25% interest in Cayenne Records, Inc., which has a
75% interest in NL Records of Nashville, Tennessee. This transaction was rescinded in 2000 due to inability of seller to produce records and
data. No value was recorded in the financial statements. Cheyenne Resources issued 11,473,711 shares of common stock for this interest.

In 1999, Cheyenne Resources entered into an Agreement with Tiger Exploration to acquire the Dixie Gas Field and interests in the Stephens
and Lick Creeks Fields for 12,000,000 shares of common stock. Title and production data could not be verified or produced, and so no value of
assets could be carried.

In June 2000, Cheyenne Resources rescinded its memorandum of understanding with Cayenne Records, Inc. In June 2000, Cheyenne
Resources also rescinded its memorandums of understanding to acquire Dixie gas Field and Interest in Stephens and Lick Creek Fields. No
value was recorded in this financial statement for these acquisitions. Of the 23,473,711 shares issued for the above referenced transactions, all
but 2,623,838 shares were returned.

In January 2004, Skye Blue Ventures, an entity beneficially owned by Mr. Dennis Iler, purchased a controlling interest in Paradigm Holdings,
formerly Cheyenne Resources, Inc. Skye Blue Ventures purchased 2,350,000 shares of common stock of Cheyenne Resources, Inc. from the
former directors of Cheyenne Resources, Inc. for $75,000 and purchased 23,000,000 shares of common stock directly from Cheyenne
Resources, inc. for $50,000. Cheyenne Resources issued 21,300,000 shares out of the 23,000,000 as it only had 21,300,000 available under its
then-current authorized common stock. Mr. Iler, former President and a Director of Cheyenne Resources, Inc. and the then-beneficial owner of
Skye Blue Ventures, brought Cheyenne Resources current in its securities filings, settled its outstanding debt, and assisted in having the
company listed on the Over-the-Counter Bulletin Board. In August 2004, J. Paul Consulting, Shortline Equity Investments and Ultimate
Investments purchased Skye Blue Ventures' ownership interest in Cheyenne Resources, Inc. and subscribed for an aggregate of 10,000,000
shares of common stock of Cheyenne Resources, Inc. for $200,000.

With respect to the sale of unregistered securities referenced above, all transactions were exempt from registration pursuant to Section 4(2) of
the Securities Act of 1933 (the "1933 Act"), and Regulation D promulgated under the 1933 Act. In each instance, the purchaser had access to
sufficient information regarding Paradigm Holdings so as to make an informed investment decision. More specifically, Paradigm Holdings had
a reasonable basis to believe that each purchaser was an "accredited investor" as defined in Regulation D of the 1933 Act and otherwise had the
requisite sophistication to make an investment in Paradigm Holdings' common stock.

                                                                         55
                                                       DESCRIPTION OF SECURITIES

Common Stock

Our Articles of Incorporation authorize the issuance of 50,000,000 shares of common stock, $0.01 par value per share. As of September 30,
2005, 20,003,368 Paradigm Holdings' shares of common stock were issued and outstanding. The following description is a summary of the
capital stock of Paradigm Holdings and contains the material terms of the capital stock. Additional information can be found in our Articles of
Incorporation and Bylaws.

Each holder of our common stock is entitled to one vote per share of common stock standing in such holder's name on our records on each
matter submitted to a vote of our stockholders, except as otherwise required by law. Holders of our common stock do not have cumulative
voting rights so that the holders of more than 50% of the combined shares of our common stock voting for the election of directors may elect
all of the directors if they choose to do so and, in that event, the holders of the remaining shares of our common stock will not be able to elect
any members to our board of directors. Holders of our common stock are entitled to equal dividends and distributions, per share, when, as and
if declared by our board of directors from funds legally available. Holders of our common stock do not have preemptive rights to subscribe for
any of our securities nor are any shares of our common stock redeemable or convertible into any of our other securities. If we liquidate,
dissolve or wind up our business or affairs, our assets will be divided up pro-rata on a share-for-share basis among the holders of our common
stock after creditors and preferred shareholders, if any, are paid.

Transfer Agent

The transfer agent for our common stock is Computershare in Denver, Colorado and its telephone number is (303) 262-0600.

Disclosure Of SEC Position On Indemnification For Securities Act Liabilities

Our Articles of Incorporation, as well as our By-Laws provide for the indemnification of directors, officers, employees and agents of the
corporation to the fullest extent provided by the corporate laws of the State of Wyoming, as well as are described in the Articles of
Incorporation and the By-Laws. These sections generally provide that the Company may indemnify any person who was or is a party to any
threatened, pending or completed action, suit or proceeding whether civil, criminal, administrative or investigative except for an action by or in
right of the corporation by reason of the fact that he or she is or was a director, officer, employee or agent of the corporation. Generally, no
indemnification may be made where the person has been determined to be negligent or guilty of misconduct in the performance of his or her
duties to the Company.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or controlling persons of
Paradigm Holdings, pursuant to the foregoing provisions, or otherwise, we have been advised that, in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed in the Securities Act of 1933, and is, therefore,
unenforceable.

Anti-Takeover Effects Of Provisions of The Articles Of Incorporation Authorized And Un-issued Stock

The authorized but un-issued shares of our common and preferred stock are available for future issuance without our shareholders' approval.
These additional shares may be utilized for a variety of corporate purposes including but not limited to future public or direct offerings to raise
additional capital, corporate acquisitions and employee incentive plans.

                                                                         56
                                                                   EXPERTS

The financial statements of Paradigm Holdings incorporated herein have been so incorporated in reliance upon the report of independent
registered public accountants, Aronson & Company, given upon their authority as experts in auditing and accounting.

                                                              LEGAL MATTERS

The validity of the shares of common stock offered hereby will be passed upon for us by ________, Wyoming.

                                                        AVAILABLE INFORMATION

We have filed with the Securities and Exchange Commission a registration statement on Form S-1 under the Securities Act with respect to the
securities offered by this prospectus. This prospectus, which forms a part of the registration statement, does not contain all the information set
forth in the registration statement, as permitted by the rules and regulations of the Commission. For further information with respect to us and
the securities offered by this prospectus, reference is made to the registration statement. Statements contained in this prospectus as to the
contents of any contract or other document that we have filed as an exhibit to the registration statement are qualified in their entirety by
reference to the to the exhibits for a complete statement of their terms and conditions. The registration statement and other information may be
read and copied at the Commission's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain
information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330. The Commission maintains a web
site at http://www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file
electronically with the Commission.

                                                                        57
                                                  FINANCIAL STATEMENTS

                                             PARADIGM HOLDINGS, INC.
                                     (FORMERLY PARADIGM SOLUTIONS CORPORATION)

                                                     TABLE OF CONTENTS
                                                                                                               Page
                                                                                                               ----
FINANCIAL STATEMENTS FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2005

Consolidated Balance Sheets as of June 30, 2005 and June 30, 2004                                         F-1 - F-2
Consolidated Statements of Operations For The Three Months and Six Months Ended June 30, 2005 and 2004          F-3

Consolidated Statements of Cash Flows For The Six Months Ended June 30, 2005 and 2004                           F-4

Notes to Consolidated Financial Statements                                                                 F-5 - F-8
FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004

Report of Independent Registered Public Accounting Firm                                                         F-10

Consolidated Balance Sheets as of December 31, 2004 and 2003                                             F-11 - F-12
Consolidated Statements of Operations For The Fiscal Years Ended December 31, 2004, 2003 and 2002               F-13

Consolidated Statements of Stockholders' Equity For The Fiscal Years Ended December 31, 2004, 2003 and         F-14
2002

Consolidated Statements of Cash Flows For The Fiscal Years Ended December 31, 2004, 2003 and 2002               F-15

Notes to Consolidated Financial Statements                                                               F-16 - F-24


                                                                   F-i
                                                PARADIGM HOLDINGS, INC.
                                        (FORMERLY PARADIGM SOLUTIONS CORPORATION)

                                                 CONSOLIDATED BALANCE SHEETS
                                                                                         Restated
                                                                                          6/30/05          12/31/04
                                                                                       (Unaudited)
                    --------------------------------------                           ------------        ------------
                    ASSETS
                    CURRENT ASSETS
                      Cash and cash equivalents                                     $     130,782    $    179,389
                      Accounts receivable - contracts                                  12,901,802      11,478,901
                      Inventory, net                                                      614,618         616,020
                      Prepaid expenses                                                  1,336,543       4,239,770
                      Other current assets                                                 94,351          89,890
                                                                                     ------------    ------------
                         TOTAL CURRENT ASSETS                                          15,078,096      16,603,970
                                                                                     ------------    ------------
                    PROPERTY AND EQUIPMENT, AT COST
                      Furniture and fixtures                                              126,384         124,845
                      Equipment                                                         1,093,098       1,043,725
                      Software                                                            311,738         221,965
                      Leasehold improvements                                              121,000         121,000
                                                                                     ------------    ------------
                         TOTAL PROPERTY AND EQUIPMENT                                   1,652,220       1,511,535
                           Less: Accumulated depreciation                               (680,515)        (504,348)
                                                                                     ------------    ------------
                         NET PROPERTY AND EQUIPMENT                                       971,705       1,007,187
                                                                                     ------------    ------------
                    OTHER ASSETS
                      Deposits                                                            97,406           77,182
                                                                                    ------------     ------------
                         TOTAL ASSETS                                               $ 16,147,207     $ 17,688,339
                                                                                    ============     ============



The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.

                                                                     F-1
                                                PARADIGM HOLDINGS, INC.
                                        (FORMERLY PARADIGM SOLUTIONS CORPORATION)

                                                 CONSOLIDATED BALANCE SHEETS
                                                                                         Restated
                                                                                          6/30/05        12/31/04
                                                                                       (Unaudited)
                     --------------------------------------------------               -----------     -----------
                     LIABILITIES AND STOCKHOLDERS' EQUITY
                     CURRENT LIABILITIES
                       Bank overdraft                                                 $ 1,233,618     $ 1,046,160
                       Note payable - line of credit                                    3,994,583       3,220,072
                       Capital lease payable                                                7,887
                       Accounts payable and accrued expenses                            3,350,749       5,476,967
                       Accrued salaries and related liabilities                         2,160,139       1,812,545
                       Deferred income taxes                                              484,422         527,000
                       Deferred revenue                                                   909,565       1,749,410
                                                                                      -----------     -----------
                         TOTAL CURRENT LIABILITIES                                     12,140,963      13,832,154
                                                                                      -----------     -----------
                     LONG-TERM LIABILITIES
                       Deferred rent                                                      148,059         144,435
                       Capital lease payable, net of current portion                       19,231
                       Deferred income taxes, net of current portion                    1,027,087       1,356,000
                                                                                      -----------     -----------
                         TOTAL LIABILITIES                                             13,335,340      15,332,589
                                                                                      -----------     -----------
                     COMMITMENTS AND CONTINGENCIES
                     STOCKHOLDERS' EQUITY
                       Common stock - $.01 par value, 50,000,000
                         shares authorized, 20,003,368 shares
                         issued and outstanding                                           200,034         200,034
                       Retained earnings                                                2,611,833       2,155,716
                                                                                      -----------     -----------
                         TOTAL STOCKHOLDERS' EQUITY                                     2,811,867       2,355,750
                                                                                      -----------     -----------
                         TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                   $16,147,207     $17,688,339
                                                                                      ===========     ===========



The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.

                                                                     F-2
                                                PARADIGM HOLDINGS, INC.
                                        (FORMERLY PARADIGM SOLUTIONS CORPORATION)

                                         CONSOLIDATED STATEMENTS OF OPERATIONS
                                                        (Unaudited)
                                                                 -------------------------       -------------------------
                                                                    Three Months Ended               Six Months Ended
                                                                    Restated                        Restated
                                                                    June 30,      June 30,          June 30,      June 30,
                                                                        2005           2004             2005          2004
        -------------------------------------------------        -----------   -----------       -----------   -----------
        Contract Revenue
          Service contracts                                      $10,924,349     $10,183,092    $21,166,957       $19,592,222
          Repair and maintenance contracts                         4,705,286       5,088,487      9,508,865         9,790,528
                                                                 -----------     -----------    -----------       -----------
            Total contract revenue                                15,629,635      15,271,579     30,675,822        29,382,750
                                                                 -----------     -----------    -----------       -----------
        Cost of revenue
          Service contracts                                        8,801,237       8,872,143      17,185,639       17,079,405
          Repair and maintenance contracts                         4,402,511       4,360,026       8,828,353        8,679,792
                                                                 -----------     -----------     -----------      -----------
            Total cost of revenue                                 13,203,748      13,232,169      26,013,992       25,759,197
                                                                 -----------     -----------     -----------      -----------
        Gross margin                                                2,425,887      2,039,410       4,661,830        3,623,553
        Selling, general and administrative                        1,938,481       2,167,329       3,880,060        3,890,039
                                                                 -----------     -----------     -----------      -----------
        Income (loss) from operations                                487,406        (127,919)        781,770         (266,486)
                                                                 -----------     -----------     -----------      -----------
        Other (expense) income
          Interest income                                              2,040          1,338            6,312            5,971
          Other income                                                   171            264              339              344
          Interest expense                                           (61,764)       (16,252)        (101,565)         (32,083)
                                                                 -----------     -----------     -----------      -----------
            Total other (expense) income                             (59,553)       (14,650)         (94,914)         (25,768)
                                                                 -----------     -----------     -----------      -----------
        Net income (loss) before income taxes                    $   427,853     $ (142,569)    $   686,856       $ (292,254)
                                                                 -----------     -----------    -----------       -----------
        Provision for income taxes                                   129,950             846         230,738            4,482
                                                                 -----------     -----------     -----------      -----------
        Net income (loss)                                        $   297,903     $ (143,415)    $   456,118       $ (296,736)
                                                                 -----------     -----------    -----------       -----------
        Basic and diluted net income (loss) per
          common share                                           $      0.01     $     (0.01)   $      0.02       $     (0.02)
                                                                 -----------     -----------    -----------       -----------
        Basic and diluted weighted average common shares
          used to compute net income (loss) per share             20,003,368      17,500,000      20,003,368       17,500,000
                                                                 -----------     -----------     -----------      -----------
        Pro-forma income tax provision (benefit)                     129,950         (55,032)        230,738         (110,110)
                                                                 -----------     -----------     -----------      -----------
        Pro-forma net income (loss)                              $   297,903     $   (87,537)    $   456,118      $ (182,144)
                                                                 -----------     -----------     -----------      -----------
        Pro-forma basic and diluted net income (loss) per
          common share                                           $      0.01     $     (0.01)    $      0.02      $     (0.01)
                                                                 -----------     -----------     -----------      -----------
        Pro-forma basic and diluted weighted average common
         shares used to compute net income (loss) per share       20,003,368      17,500,000      20,003,368       17,500,000
                                                                 -----------     -----------     -----------      -----------



The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.

                                                                     F-3
                                                PARADIGM HOLDINGS, INC.
                                        (FORMERLY PARADIGM SOLUTIONS CORPORATION)

                                         CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                        (Unaudited)
                                                                                             Restated
             Six Months Ended June 30,                                                           2005             2004
                                                                                         ------------     ------------
             CASH FLOWS FROM OPERATING ACTIVITIES
               Net income (loss)                                                        $     456,118     $       (296,736)
             ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET
               CASH (USED)PROVIDED BY OPERATING ACTIVITIES:
               Depreciation                                                                   176,167              139,009
                 (INCREASE) DECREASE IN
                   Accounts receivable - contracts                                          (1,422,901)        2,967,323
                   Inventory, net                                                                1,402            (2,491)
                   Prepaid expenses                                                          2,903,226          (600,650)
                   Other current assets                                                         (4,461)            4,346
                   Deposits                                                                    (20,224)
                 (DECREASE) INCREASE IN
                   Accounts payable and accrued expenses                                   (2,126,218)        (1,319,412)
                   Accrued salaries and related liabilities                                   347,594            813,200
                   Deferred income taxes                                                     (371,491)
                   Deferred revenue                                                          (839,845)             275,013
                   Deferred rent                                                                3,624
                                                                                         ------------     ------------
                 NET CASH(USED)PROVIDED BY OPERATING ACTIVITIES                              (897,009)       1,979,603
                                                                                         ------------     ------------
             CASH FLOWS FROM INVESTING ACTIVITIES
               Purchase of property and equipment                                            (111,160)        (166,034)
                                                                                         ------------     ------------
                 NET CASH USED BY INVESTING ACTIVITIES                                       (111,160)        (166,034)
             CASH FLOWS FROM FINANCING ACTIVITIES
               Bank overdraft                                                                 187,458             (351,932)
               Payments on capital lease                                                       (2,407)
               Proceeds from line of credit                                                21,529,947       18,381,254
               Payments on line of credit                                                 (20,755,436)     (19,694,823)
                                                                                         ------------     ------------
                 NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES                             959,562       (1,665,501)
                                                                                         ------------     ------------
                 NET (DECREASE) INCREASE IN CASH                                              (48,607)             148,067
             CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                   179,389           17,891
                                                                                         ------------     ------------
             CASH AND CASH EQUIVALENTS, END OF PERIOD                                   $    130,782      $    165,958
                                                                                        ============      ============
             SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
               Cash paid for income taxes                                               $      6,378      $      4,482
                                                                                        ============      ============
               Cash paid for interest                                                   $    101,565      $     32,083
                                                                                        ============      ============
               Equipment purchased under capital lease                                  $     29,525      $
                                                                                        ============      ============



The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.

                                                                     F-4
                                                  PARADIGM HOLDINGS, INC.
                                          (FORMERLY PARADIGM SOLUTIONS CORPORATION)

                                       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION

Paradigm Holdings, Inc. ("PDHO"), formerly Cheyenne Resources, Inc., was incorporated in the state of Wyoming on November 17, 1970. On
November 3, 2004, Paradigm Holdings, Inc. entered into an Agreement and Plan of Reorganization with Paradigm Solutions Merger Corp.
("Merger Sub"), Paradigm Solutions Corporation ("PSC"), and the shareholders of PSC. Pursuant to the Agreement and Plan of
Reorganization, the Merger Sub was merged with and into PSC, which was the surviving corporation, and became a wholly owned subsidiary
of PDHO. In consideration of the merger, the PSC shareholders exchanged 13,699, or 100%, of their common stock for 17,500,000 shares of
common stock of PDHO.

Although PDHO is the legal acquirer in the acquisition, and remains the registrant with the SEC, under generally accepted accounting
principles, the acquisition was accounted for as a reverse acquisition, whereby PSC is considered the "acquirer" of PDHO for financial
reporting purposes. The following factors were considered: 1) PSC's shareholders controlled more than 50% of the post acquisition combined
entity, 2) management, after the acquisition, is that of PSC, 3) PDHO had no assets and an immaterial amount of liabilities as of the acquisition
date, and 4) continuing operations of the business are that of PSC.

Effective November 3, 2004, PDHO conducts business through its wholly owned subsidiary Paradigm Solutions Corporation. On December
17, 2004, PSC formed a wholly owned subsidiary, Paradigm Solutions International, Inc. ("PSI"). The accompanying consolidated financial
statements include the accounts of PDHO, PSC and PSI (collectively, the "Company"). All significant inter-company balances and transactions
have been eliminated in consolidation.

The Company is a full-service information technology (IT) and business solutions provider offering a wide range of technical support and
management services to improve the operational efficiency of government and industry. The Company graduated from the Small Business
Administration's 8(a) Business Development program on October 13, 2004. Today, the Company possesses a portfolio of flexible contract
vehicles arrangements to expedite delivery of information technology services and solutions to clients across the federal government.

The consolidated condensed financial statements included herein have been prepared by Paradigm Holdings, Inc. (the Company) without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been
condensed or omitted pursuant to such rules and regulations; however, the Company believes that the disclosures are adequate to make the
information presented not misleading. The condensed financial statements included herein should be read in conjunction with the financial
statements and the notes thereto included in the Company's 2004 Form 10-K.

In the opinion of the registrant, the accompanying financial statements contain all adjustments (consisting of only normal recurring accruals)
necessary to present fairly the financial position of the Company at June 30, 2005 and December 31, 2004, its results of operations for the
quarter and six months ended June 30, 2005 and June 30, 2004, and its cash flows for the six months ended June 30, 2005 and June 30, 2004.

DESCRIPTION OF CRITICAL ACCOUNTING POLICIES

The preparation of these consolidated financial statements are prepared in accordance with accounting principles generally accepted in the
United States, which require our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during
the reporting periods.

On an ongoing basis, management evaluates its estimates including those related to contingent liabilities, revenue recognition, and other
intangible assets. Management bases its estimates on historical experience and on various other factors that are believed to be reasonable at the
time the estimates are made. Actual results may differ from these estimates under different assumptions or conditions.

Our management routinely makes judgments and estimates about the effects of matters that are inherently uncertain. As the number of
variables and assumptions affecting the probable future resolution of the uncertainties increase, these judgments become even more subjective
and complex. We have identified certain accounting policies, described below, that are the most important to the portrayal of our current
financial condition and results of operations.

USE OF ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and

                                                                       F-5
liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.

REVENUE RECOGNITION

Revenue from time and materials contracts is recognized as costs are incurred at amounts represented by the agreed-upon billing amounts.

Fixed price labor hour and level of effort contracts involve defined numbers of hours or categories of personnel. Revenue on fixed unit price
contracts, where specific units of output under service agreements are delivered, is recognized as units are delivered based on the specific price
per unit. Fixed price maintenance contracts are recognized as revenue on a pro-rata basis over the life of the contract.

In certain arrangements, the Corporation enters into contracts that include the delivery of a combination of two or more of its service offerings.
Such contracts are divided into separate units of accounting and revenue is recognized separately, and in accordance with, the Corporation's
revenue recognition policy for each element.

Software revenue recognition is in accordance with AICPA Statement of Position 97-2. Since the Company has not established VSOE,
recognition of revenue from the sale of licenses is over the term of the contract.

Revenue from cost-type contracts is recognized as costs are incurred on the basis of direct costs plus allowable operating costs and expenses
and an allocable portion of the fixed fee.

The Company is subject to audits from federal government agencies. The Company has reviewed its contracts and determined there is no
material risk of financial adjustments due to government audit. To date, we have not had any adjustments as a result of a government audit of
our contracts.

Revenue recognized on contracts for which billings have not yet been presented to customers is included in the Accounts Receivable - contracts
classification on the accompanying Balance Sheets.

Deferred revenue relates to contracts for which customers pay in advance for services to be performed at a future date. The Corporation
recognizes deferred revenue attributable to our maintenance contracts over the related service periods, which run through 2005. Revenue
related to our OpsPlanner offering, including consulting, software subscriptions and technical support, is deferred and recognized over the
appropriate contract service period. These payments are nonrefundable.

COST OF REVENUE

Cost of revenue for service contracts consist primarily of labor, consultant, subcontract, materials, travel expenses and an allocation of indirect
costs attributable to the performance of the contract.

Cost of revenue for repair and maintenance contracts consist primarily of labor, consultant, subcontract, materials, travel expenses and an
allocation of indirect costs attributable to the performance of the contract.

MAJOR CUSTOMERS

During the six months ended June 30, 2005 and 2004, the Company's revenues generated from five major customers, totaled 97% and 99% of
total revenue, respectively. The Company's accounts receivable related to these five major customers were 95% and 100% of total accounts
receivable at the end of the respective periods. The Company defines major customer as a government agency or individual commercial
customers.

INVENTORY

Inventory consists of replacement printer parts and is stated at the lower of cost or market using the FIFO method.

INCOME TAXES

Prior to November 5, 2004, Paradigm Solutions Corporation was treated as an S Corporation, and therefore, did not pay Federal and state
corporate income taxes since the tax attributes of the entity were reported on the stockholders' tax returns. Paradigm Solutions Corporation filed
its income tax returns on the cash basis of accounting, whereby revenue was recognized when received and expenses were recognized when
paid. Effective November 5, 2004, Paradigm Solutions Corporation revoked its S-Corporation status and therefore is subject to income taxes at
the corporate level.

                                                                        F-6
Deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and
their financial reporting amounts at each year end based on enacted tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable earnings. Valuation allowances are established when necessary to reduce deferred tax assets to the
amount more likely than not to be realized.

PRO FORMA FINANCIAL DATA:

The unaudited pro forma information for the periods set forth below is based on the operations of Paradigm Solutions Corporation and is
prepared as if the Corporation had been a C Corporation at the beginning of each period assuming a tax provision of 38.6%.
                                                                        Three Months Ended                           Six Months Ended
                                                                  Restated                                Restated
                                                                  June 30,          June 30,              June 30,             June 30,
STATEMENT OF OPERATION DATA:                                          2005              2004                  2005                 2004
(in thousands, except per share data)                           ----------        ----------            ----------           ----------
Net income (loss) before income taxes                                  428              (143)                  687                 (292)
Income tax provision (benefit)                                         130               (55)                  231                 (110)
Net income (loss)                                                      298               (88)                  456                 (182)
Basic and diluted net income (loss) per common share            $     0.01        $    (0.01)           $     0.02           $    (0.01)
Weighted average common shares outstanding                          20,003            17,500                20,003               17,500




2. COMPENSATION AND EMPLOYMENT AGREEMENTS

Effective April 1, 2005, Samar Ghadry and Paradigm Solutions Corporation, a wholly-owned subsidiary of Paradigm Holdings, entered into a
Letter Agreement pursuant to which Ms. Ghadry and Paradigm Solutions Corporation agreed and acknowledged that Ms. Ghadry's
employment with Paradigm Solutions Corporation ended effective April 1, 2005. Pursuant to the terms of the Letter Agreement, Paradigm
Solutions Corporation agreed to pay Ms. Ghadry severance pay in an amount equal to Ms. Ghadry's base pay for nine months in accordance
with Paradigm Solutions Corporation's normal payroll practices. Paradigm Solutions Corporation agreed to pay Ms. Ghadry a bonus for the
first quarter of 2005 equal to $20,250. In addition, Paradigm Holdings agreed to register 1,575,000 shares of common stock owned by Ms.
Ghadry. Further, Ms. Ghadry agreed that she will not, except with the prior written approval of Paradigm Holdings, engage in a disposition
with respect to 100% of these shares until the earlier to occur of:

(i) the date of the closing of a financing through the sale of debt or equity securities in which Paradigm Holdings receives in one or a series of
transactions gross proceeds in an amount equal to at least $3 million or (ii) September 30, 2005. Ms. Ghadry also agreed that, when she is able
to sell her shares of common stock, that she will not sell more than 2,000 shares in any single business day; however, in the event the average
daily volume of the shares of Paradigm Holdings' common stock exceeds 10,000 shares for a period of 5 consecutive business days, Ms.
Ghadry may sell up to an aggregate of 4,000 shares per day, commencing on the first business day thereafter and continuing so long as the
average 5-day daily volume continues to exceed 10,000 shares. Ms. Ghadry and Paradigm Holdings agreed that, to the extent allowed by law
and with the express written approval of the President and Chief Operating Officer of Paradigm Holdings, Ms. Ghadry may sell her shares to a
bona fide purchaser in a private placement provided such purchaser agrees to be subject to the terms of the Letter Agreement.

3. CONTRACT STATUS

The Company has authorized but uncompleted contracts on which work is in progress at June 30, 2005 approximately, as follows:

2005
Total contract prices of initial contract awards, including
                        exercised options and approved change orders (modifications)                $ 176,946,000
                        Completed to date                                                            (143,535,000)
                                                                                                    -------------
                             AUTHORIZED BACKLOG                                                     $ 33,411,000
                                                                                                    =============



The foregoing contracts contain unfunded and unexercised options not reflected in the above amounts of approximately $80,332,000.

4. NOTE PAYABLE - LINE OF CREDIT

The Company has a line of credit arrangement with SunTrust Bank which expired on June 30, 2005. Subsequently, on June 22, 2005 the
company received an extension of the line of credit arrangement through September 30, 2005. Under the terms of the latest agreement, the

                                                                       F-7
Corporation had to maintain: (1) minimum tangible net worth of $2,650,000 beginning on and as of June 30, 2005; (2) debt coverage ratio of
not more then 5.0 to 1.0 beginning on and as of June 30, 2005; (3) minimum quarterly net income of $1.00 for the quarters ending June 30 and
September 30, 2005. The Corporation was in compliance with the line of credit agreement covenants as of June 30, 2005.

The Company terminated its line of credit agreement with SunTrust Bank effective September 1, 2005.

On July 28, 2005, the Company entered into a two year Loan and Security Agreement with Chevy Chase Bank that provides for a revolving
line of credit facility of up to $9 million. The agreement became effective August 4, 2005. The revolving line of credit will be used to borrow
revolving loans for working capital and general corporate purposes. The Company will terminate its existing revolving line of credit facility
with SunTrust once this agreement is activated.

The revolving loans under the Chevy Chase Bank Loan and Security Agreement are secured by a first priority lien on substantially all of the
assets of the Company, excluding intellectual property and real estate. Under the agreement, the line is due on demand and interest is payable
monthly depending on the Corporation's leverage ratio at the LIBOR rate plus the applicable spread which ranges from 2.25% to 3.00%. Under
the terms of the agreement, the Corporation may borrow up to the lesser of $9,000,000 or 90% of eligible U.S. Government receivables plus
80% of eligible commercial receivables plus 75% of the aggregate amount of billable but unbilled accounts to a maximum of $3,000,000. The
Loan and Security Agreement requires that the Company maintain the following covenants and ratios: (1) minimum tangible net worth of
$2,000,000 plus 50% of Company's net income for each fiscal year beginning with fiscal year ending December 31, 2005; (2) debt coverage
ratio of not less than 1.500 to 1.000; (3) maximum leverage ratio of 5.50 to 1.00, which will be decreased to 5.25 to 1.00 by December 31, 2005
and 4.00 to 1.00 by December 31, 2006. All working capital, as it relates to these covenants and ratios requirements will evaluated as of
quarter-end.

The Loan and Security Agreement contains events of default that include among other things, non-payment of principal, interest or fees,
violation of covenants, inaccuracy of representations and warranties, cross default to certain other indebtedness, bankruptcy and insolvency
events, change of control and material judgments. Upon occurrence of an event of default, Chevy Chase Bank is entitled to, among other
things, accelerate all obligations of the Company and sell the Company's assets to satisfy the Company's obligations under the Loan and
Security Agreement.

5. RESTATEMENT

The Company has restated its previously issued financial statements to:

1. Break-out certain expenses previously reported as "Indirect Costs" into Cost of Revenue and Selling, General and Administrative expenses
for the quarter and six months ended June 30, 2005 and 2004. There was no impact to total revenue, net income or earnings-per-share for this
adjustment.

2. Restate revenue and cost of revenue balances for our federal maintenance contracts and federal service contracts.

3. Reflect the decrease in revenue, gross margin and net income attributable to changing the Company's revenue recognition as it relates to
software licenses for the quarter ended June 30, 2005 and the six months ended June 30, 2005. In accordance with SOP 97-2, the Company will
recognize software license revenue over the contract term until it establishes VSOE.
                                                                   Three Months Ended                     Six Months Ended
                                                                 June 30,        June 30,             June 30,        June 30,
                                                                     2005             2004                2005            2005
                                                            -------------    ------------        -------------   -------------
     Total contract revenue, as previously reported         $ 15,638,885     $ 15,271,579        $ 30,773,322    $ 29,382,750
     Adjustment to Total Contract Revenue due to
        change in S/W Revenue Recognition                          (9,250)                --           (97,500)               --
                                                            -------------      -------------     -------------     -------------
     Total contract revenue, as restated                    $ 15,629,635       $ 15,271,579      $ 30,675,822      $ 29,382,750
     Gross margin, as previously reported                   $    4,268,910     $    4,027,971    $    8,445,978    $    7,484,641
     Adjustment to Gross Margin due to
        break-out of Indirect Expense                           (1,833,772)        (1,988,561)       (3,686,648)       (3,861,088)
     Adjustment to Gross Margin due to
        change in S/W Revenue Recognition                          (9,250)                --           (97,500)               --
                                                            -------------      -------------     -------------     -------------
     Gross margin, as restated                              $   2,425,888      $   2,039,410     $   4,661,830     $   3,623,553
     Net income (loss) before income taxes,
        as previously reported                              $      437,103     $    (142,569)    $      784,356    $     (292,254)
     Adjustment to Net Income (Loss) before
        Income Taxes due to
        change in S/W Revenue Recognition                          (9,250)                --           (97,500)               --
                                                            -------------      -------------     -------------     -------------
     Net income (Loss) before Income Taxes,
        as restated                                         $      427,853     $    (142,569)    $      686,856    $     (292,254)
     Net income, as previously reported                     $      302,064     $    (143,415)    $      514,187    $     (296,736)
     Adjustment to Net Income due to
        change in S/W Revenue Recognition                           (4,161)                --           (58,069)                --
                          -------------   -------------    -------------   -------------
Net income, as restated   $     297,903   $    (143,415)   $     456,118   $    (296,736)


                                  F-8
                                                            Prior          Adjustment      Restated
                                                           6/30/05         Due to S/W       6/30/05
                                                         (Unaudited)       Recognition    (Unadited)
--------------------------------------                  ------------      ------------   ------------
ASSETS
CURRENT ASSETS
  Cash and cash equivalents                             $    130,782                     $    130,782
  Accounts receivable - contracts                         12,901,802                       12,901,802
  Inventory, net                                             614,618                          614,618
  Prepaid expenses                                         1,297,112            39,431      1,336,543
  Other current assets                                        94,351                           94,351
                                                        ------------      ------------   ------------
    TOTAL CURRENT ASSETS                                  15,038,665            39,431     15,078,096
                                                        ------------      ------------   ------------
PROPERTY AND EQUIPMENT, AT COST
  Furniture and fixtures                                     126,384                          126,384
  Equipment                                                1,093,098                        1,093,098
  Software                                                   311,738                          311,738
  Leasehold improvements                                     121,000                          121,000
                                                        ------------      ------------   ------------
    TOTAL PROPERTY AND EQUIPMENT                           1,652,220                 0      1,652,220
                                                        ------------      ------------   ------------
      Less:    Accumulated depreciation                     (680,515)                        (680,515)
                                                        ------------      ------------   ------------
    NET PROPERTY AND EQUIPMENT                               971,705                 0        971,705
                                                        ------------      ------------   ------------
OTHER ASSETS
  Deposits                                                    97,406                           97,406
                                                        ------------      ------------   ------------
    TOTAL ASSETS                                        $ 16,107,776      $     39,431   $ 16,147,207
                                                        ============      ============   ============

                                                            Prior          Adjustment      Restated
                                                           6/30/05         Due to S/W       6/30/05
                                                         (Unaudited)       Recognition    (Unadited)
---------------------------------------                 ------------      ------------   ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
  Bank overdraft                                            $ 1,233,618                   $ 1,233,618
  Note payable - line of credit                               3,994,583                     3,994,583
  Capital lease payable                                           7,887                         7,887
  Accounts payable and accrued expenses                       3,350,749                     3,350,749
  Accrued salaries and related liabilities                    2,160,139                     2,160,139
  Deferred income taxes                                         484,422                       484,422
  Deferred revenue                                              812,065        97,500         909,565
                                                            -----------   -----------     -----------
    TOTAL CURRENT LIABILITIES                                12,043,463        97,500      12,140,963
                                                            -----------   -----------     -----------
LONG-TERM LIABILITIES
  Deferred rent                                                 148,059                       148,059
  Capital lease payable, net of current portion                  19,231                        19,231
  Deferred income taxes, net of current portion               1,027,087                     1,027,087
                                                            -----------   -----------     -----------
    TOTAL LIABILITIES                                        13,237,840        97,500      13,335,340
                                                            -----------   -----------     -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
  Common stock - $.01 par value, 50,000,000
    shares authorized, 20,003,368 shares
    issued and outstanding                                      200,034                      200,034
  Retained earnings                                           2,669,902       (58,069)     2,611,833
                                                            -----------   -----------    -----------
    TOTAL STOCKHOLDERS' EQUITY                                2,869,936       (58,069)     2,811,867
                                                            -----------   -----------    -----------
    TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY              $16,107,776   $    39,431    $16,147,207
                                                            ===========   ===========    ===========


                                                  F-9
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors
PARADIGM HOLDINGS, INC.
 (FORMERLY PARADIGM SOLUTIONS CORPORATION)
Rockville, Maryland

We have audited the accompanying Consolidated Balance Sheets of PARADIGM HOLDINGS, INC. (FORMERLY PARADIGM
SOLUTIONS CORPORATION) AND SUBSIDIARIES as of December 31, 2004 and 2003, and the related Consolidated Statements of
Operations, Stockholders' Equity and Cash Flows for each of the three years in the period ended December 31, 2004. These financial
statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based
on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of
PARADIGM HOLDINGS, INC. (FORMERLY PARADIGM SOLUTIONS CORPORATION) AND SUBSIDIARIES as of December 31,
2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2004 in
conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement
schedules for each of the three years in the period ended December 31, 2004, when considered in relation to the basic financial statements
taken as a whole, present fairly in all material respects the information set forth therein.

As discussed in Note 16, the financial statements referred to above have been restated to break-out certain expenses previously reported as
"indirect costs" into cost of revenue and selling, general and administrative expenses and to restate revenue and cost of revenue balances related
to the federal maintenance contracts and federal service contracts.
                                         /s/ Aronson & Company
                                         Rockville, Maryland
                                         February 11, 2005, except for Notes 5 and 16, as to
                                         which the dates are July 25, 2005 and September 28,
                                         2005, respectively


                                                                      F-10
                                                 PARADIGM HOLDINGS, INC.
                                         (FORMERLY PARADIGM SOLUTIONS CORPORATION)

                                                 CONSOLIDATED BALANCE SHEETS
                        December 31,                                            2004                     2003
                        ------------------------------------------          ------------             ------------
                        ASSETS
                        CURRENT ASSETS
                          Cash and cash equivalents                         $    179,389             $     17,890
                          Accounts receivable - contracts                     11,478,901               14,494,968
                          Inventory, net                                         616,020                  540,005
                          Prepaid expenses                                     4,239,770                2,220,991
                          Other current assets                                    89,890                   17,414
                                                                            ------------             ------------
                            TOTAL CURRENT ASSETS                              16,603,970               17,291,268
                                                                            ------------             ------------
                        PROPERTY AND EQUIPMENT, AT COST
                          Furniture and fixtures                                 124,845                  117,920
                          Software                                               221,965                   82,051
                          Leasehold improvements                                 121,000                  102,531
                          Equipment                                            1,043,725                  916,922
                                                                            ------------             ------------
                            TOTAL PROPERTY AND EQUIPMENT                       1,511,535                1,219,424
                                                                            ------------             ------------
                              Less:    Accumulated depreciation                 (504,348)                (204,690)
                                                                            ------------             ------------
                            NET PROPERTY AND EQUIPMENT                         1,007,187                1,014,734
                                                                            ------------             ------------
                        OTHER ASSETS
                          Deposits                                                77,182                   76,207
                                                                            ------------             ------------
                            TOTAL ASSETS                                    $ 17,688,339             $ 18,382,209
                                                                            ============             ============



The accompanying Notes to Financial Statements are an integral part of these financial statements.

                                                                     F-11
                                                 PARADIGM HOLDINGS, INC.
                                         (FORMERLY PARADIGM SOLUTIONS CORPORATION)

                                                 CONSOLIDATED BALANCE SHEETS
  December 31,                                                                                          2004          2003
  --------------------------------------------------------------------------------                   -----------   -----------
  LIABILITIES AND STOCKHOLDERS' EQUITY
  CURRENT LIABILITIES
    Bank overdraft                                                                                   $ 1,046,160   $     695,980
    Note payable - line of credit                                                                      3,220,072       3,000,000
    Accounts payable and accrued expenses                                                              5,476,967       4,514,721
    Accrued salaries and related liabilities                                                           1,812,545       1,601,297
    Deferred income taxes                                                                                527,000
    Deferred revenue                                                                                   1,749,410     2,328,690
                                                                                                     -----------   -----------
      TOTAL CURRENT LIABILITIES                                                                       13,832,154    12,140,688
                                                                                                     -----------   -----------
  LONG-TERM LIABILITIES
    Deferred rent                                                                                        144,435        115,012
    Deferred income taxes, net of current portion                                                      1,356,000
                                                                                                     -----------   -----------
      TOTAL LIABILITIES                                                                               15,332,589    12,255,700
                                                                                                     -----------   -----------
  COMMITMENTS AND CONTINGENCIES
  STOCKHOLDERS' EQUITY (AS RESTATED, NOTE 11)
    Common stock - $.01 par value, 50,000,000 shares authorized, 20,003,368 and
      17,500,000 shares issued and outstanding as of 2004 and 2003, respectively                         200,034       175,000
    Retained earnings                                                                                  2,155,716     5,951,509
                                                                                                     -----------   -----------
      TOTAL STOCKHOLDERS' EQUITY                                                                       2,355,750     6,126,509
                                                                                                     -----------   -----------
      TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                                     $17,688,339   $18,382,209
                                                                                                     ===========   ===========



The accompanying Notes to Financial Statements are an integral part of these financial statements.

                                                                     F-12
                                                 PARADIGM HOLDINGS, INC.
                                         (FORMERLY PARADIGM SOLUTIONS CORPORATION)

                                          CONSOLIDATED STATEMENTS OF OPERATIONS
 Years Ended December 31,                                                       2004                2003             2002
 ----------------------------------------------------------------           ------------        ------------     ------------
 CONTRACT REVENUE
   Service contracts                                                        $ 39,487,603        $ 36,091,375     $ 26,656,972
   Repair and maintenance contracts                                           22,268,698          15,114,617       11,016,120
                                                                            ------------        ------------     ------------
     TOTAL CONTRACT REVENUE                                                   61,756,301          51,205,992       37,673,092
                                                                            ------------        ------------     ------------

 Cost of revenue
   Service contracts                                                          33,950,665          32,675,562       23,023,558
   Repair and maintenance contracts                                           20,594,289          13,134,103        9,396,121
                                                                            ------------        ------------     ------------
     Total cost of revenue                                                    54,544,954          45,809,665       32,419,679
                                                                            ------------        ------------     ------------

 Gross margin                                                                  7,211,347             5,396,327      5,253,413

 Selling, general and administrative                                           8,994,477           4,950,853        2,889,944
                                                                            ------------        ------------     ------------
 Income (loss) from operations                                                (1,783,130)            445,474        2,363,469
                                                                            ------------        ------------     ------------
 Other (expense) income
   Interest income - stockholder                                                                       1,607            4,039
   Interest income - other                                                        12,529              20,085           30,665
   Interest expense                                                              (61,920)               (290)          (2,741)
                                                                            ------------        ------------     ------------
     Total other (expense) income                                                (49,391)             21,402           31,963
                                                                            ------------        ------------     ------------

 Net income (loss) before income taxes                                        (1,832,521)       $    466,876     $ 2,395,432
                                                                            ------------        ------------     ------------

 Provision for income taxes                                                    1,934,380              35,125            7,529
                                                                            ------------        ------------     ------------

 Net income (loss)                                                          $ (3,766,901)       $    431,751     $ 2,387,903
                                                                            ------------        ------------     ------------

 Basic and diluted net income (loss) per common share                       $      (0.21)       $       0.03     $       0.14
                                                                            ------------        ------------     ------------

 Basic and diluted weighted average common share used to
   compute net income per share                                               17,896,709          17,500,000       17,500,000
                                                                            ------------        ------------     ------------

 Pro-forma provision (benefit) for income taxes (Note 12)                       (707,353)            180,214          924,636
                                                                            ------------        ------------     ------------

 Pro-forma net income (loss)                                                  (1,125,168)            286,662        1,470,796
                                                                            ------------        ------------     ------------

 Pro-forma basic and diluted net income (loss) per common share             ($      0.06)       $       0.02     $       0.08
                                                                            ------------        ------------     ------------

 Pro-forma weighted average common shares outstanding                         17,896,709          17,500,000       17,500,000
                                                                            ------------        ------------     ------------




The accompanying Notes to Financial Statements are an integral part of these financial statements.

                                                                     F-13
                                                 PARADIGM HOLDINGS, INC.
                                         (FORMERLY PARADIGM SOLUTIONS CORPORATION)

                                  CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                                                  Common Stock
                                                          ------------------------------
 Years Ended December 31, 2004, 2003 and                                                               Retained
   2002                                                      Share               Amount                Earnings        Total
 ---------------------------------------------------      -----------         -----------            -----------    -----------
 Balance, January 1, 2002
   (as Restated, Note 11)                                  17,500,000         $   175,000            $ 3,313,855    $ 3,306,855
 Net Income                                                                                            2,387,903      2,387,903
                                                           ----------         -----------            -----------    -----------
 Balance, December 31, 2002                                17,500,000             175,000              5,519,758      5,694,758

 Net Income                                                                                              431,751        431,751
                                                           ----------         -----------            -----------    -----------
 Balance, December 31, 2003                                17,500,000             175,000              5,951,509      6,126,509

 Recapitalization and Net Liabilities Assumed as
   a Result of Reverse Merger                               2,503,368              25,034                (28,892)        (3,858)

 Net Loss                                                                                             (3,766,901)    (3,766,901)

 Balance, December 31, 2004                                20,003,368         $   200,034            $ 2,155,716    $ 2,355,750
                                                          -----------         -----------            -----------    -----------




The accompanying Notes to Financial Statements are an integral part of these financial statements.

                                                                     F-14
                                                 PARADIGM HOLDINGS, INC.
                                         (FORMERLY PARADIGM SOLUTIONS CORPORATION)

                                          CONSOLIDATED STATEMENTS OF CASH FLOWS
 Years Ended December 31,                                                       2004                2003               2002
 ---------------------------------------------------------------            ------------        ------------       ------------
 CASH FLOWS FROM OPERATING ACTIVITIES
   Net income (loss)                                                        $ (3,766,901)       $      431,751     $   2,387,903
 ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH USED BY
   OPERATING ACTIVITIES:
   Depreciation                                                                  299,658               159,292            48,001
   Loss on disposal                                                                   --                24,315                --
     (INCREASE) DECREASE IN
       Accounts receivable - contracts                                         3,016,067             (5,983,859)       (2,167,584)
       Inventory, net                                                            (76,015)              (540,005)
       Prepaid expenses                                                       (2,018,779)              (839,719)        (640,356)
       Other current assets                                                      (72,476)               (14,724)          (6,453)
       Deposits                                                                     (975)               (57,139)          (4,473)
     (DECREASE) INCREASE IN
       Accounts payable and accrued expenses                                     958,387           1,964,129             32,437
       Accrued salaries and related liabilities                                  211,248             788,853            276,182
       Deferred income taxes                                                   1,883,000                  --                 --
       Deferred revenue                                                         (579,280)          2,328,690                 --
       Deferred rent                                                              29,423             115,012                 --
                                                                            ------------        ------------       ------------
         NET CASH USED BY OPERATING ACTIVITIES                                  (116,643)         (1,623,404)           (74,343)
                                                                            ------------        ------------       ------------

 CASH FLOWS FROM INVESTING ACTIVITIES
   Purchase of property and equipment                                           (292,110)         (1,042,859)          (108,559)
   Repayment of notes receivable - stockholder                                         0              47,510             19,453
                                                                            ------------        ------------       ------------
     NET CASH USED BY INVESTING ACTIVITIES                                      (292,110)           (995,349)           (89,106)
                                                                            ------------        ------------       ------------

 CASH FLOWS FROM FINANCING ACTIVITIES
   Bank overdraft                                                                350,180            (635,385)           913,142
   Proceeds from line of credit                                               37,673,041           7,214,629          1,757,040
   Payments on line of credit                                                (37,452,969)         (4,573,448)        (1,928,186)
                                                                            ------------        ------------       ------------
     NET CASH PROVED BY FINANCING ACTIVITIES                                     570,252           2,005,796            741,996
                                                                            ------------        ------------       ------------

     NET (DECREASE) INCREASE IN CASH                                             161,499              (612,957)          578,547

 CASH, BEGINNING OF YEAR                                                          17,890             630,847             52,300
                                                                            ------------        ------------       ------------

 CASH, END OF YEAR                                                          $    179,389        $     17,890       $    630,847
                                                                            ============        ============       ============

 SUPPLEMENT DISCLOSURE OF CASH FLOW INFORMATION
   Cash paid for income taxes                                               $    747,486        $     35,125       $      7,529
                                                                            ============        ============       ============

   Cash paid for interest                                                   $     61,920        $        290       $      2,741
                                                                            ============        ============       ============




The accompanying Notes to Financial Statements are an integral part of these financial statements.

                                                                     F-15
                                                  PARADIGM HOLDINGS, INC.
                                          (FORMERLY PARADIGM SOLUTIONS CORPORATION)

                                       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION

Paradigm Holdings, Inc. (PDHO), formerly Cheyenne Resources, Inc., was incorporated in the state of Wyoming on November 17, 1970. On
November 3, 2004, Paradigm Holdings, Inc. entered into an Agreement and Plan of Reorganization with Paradigm Solutions Merger Corp.
(Merger Sub), Paradigm Solutions Corporation (PSC), and the shareholders of PSC. Pursuant to the Agreement and Plan of Reorganization, the
Merger Sub was merged with and into PSC, which was the surviving corporation, and became a wholly owned subsidiary of PDHO. In
consideration of the merger, the PSC shareholders exchanged 13,699, or 100%, of their common stock for 17,500,000 shares of common stock
of PDHO.

Although PDHO is the legal acquirer in the acquisition, and remains the registrant with the SEC, under generally accepted accounting
principles, the acquisition was accounted for as a reverse acquisition, whereby PSC is considered the "acquirer" of PDHO for financial
reporting purposes. The following factors were considered: 1) PSC's shareholders controlled more than 50% of the post acquisition combined
entity, 2) management, after the acquisition, is that of PSC, 3) PDHO had no assets and an immaterial amount of liabilities as of the acquisition
date, and 4) continuing operations of the business are that of PSC.

Effective November 3, 2004, PDHO conducts business through its wholly owned subsidiary Paradigm Solutions Corporation. On December
17, 2004, PDHO formed a wholly owned subsidiary, Paradigm Solutions International, Inc. (PSI). The accompanying consolidated financial
statements include the accounts of PDHO, PSC and PSI (collectively, the Corporation). All significant inter-company balances and transactions
have been eliminated in consolidation.

The Corporation is a full-service information technology (IT) and business solutions provider offering a wide range of technical support and
management services to improve the operational efficiency of government and industry. The Corporation graduated from the Small Business
Administration's 8(a) Business Development program on October 13, 2004. Today, the Corporation possesses a portfolio of flexible contract
vehicles arrangements to expedite delivery of information technology services and solutions to clients across the federal government.

Use Of Accounting Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.

Cash And Cash Equivalents

For purposes of financial statement presentation, the Corporation considers all highly liquid debt instruments with initial maturities of ninety
days or less to be cash equivalents. The Corporation maintains cash balances which may exceed federally insured limits. Management does not
believe that this results in any significant credit risk.

Fair Value Of Financial Instruments

At December 31, 2004 and 2003, the carrying value of current financial instruments such as cash, accounts receivable, accounts payable, and
accrued liabilities approximated their market values, based on the short-term maturities of these instruments. Fair value is determined based on
expected cash flows, discounted at market rates, and other appropriate valuation methodologies.

Revenue Recognition

Revenue from time and materials contracts is recognized as costs are incurred at amounts represented by the agreed-upon billing amounts.

Fixed price labor hour and level of effort contracts involve defined numbers of hours or categories of personnel. Revenue on fixed unit price
contracts, where specific units of output under service agreements are delivered, is recognized as units are delivered based on the specific price
per unit. Fixed price maintenance contracts are recognized as revenue on a pro-rata basis over the life of the contract.

In certain arrangements, the Corporation enters into contracts that include the delivery of a combination of two or more of its service offerings.
Such contracts are divided into separate units of accounting and revenue is recognized separately, and in accordance with, the Corporation's
revenue recognition policy for each element.

                                                                       F-16
Software revenue recognition is in accordance with AICPA Statement of Position 97-2. Since the Company has not established VSOE,
recognition of revenue from the sale of licenses is over the term of the contract.

Revenue from cost-type contracts is recognized as costs are incurred on the basis of direct costs plus allowable operating costs and expenses
and an allocable portion of the fixed fee.

The Company is subject to audits from federal government agencies. The Company has reviewed its contracts and determined there is no
material risk of financial adjustments due to government audit. To date, we have not had any adjustments as a result of a government audit of
our contracts.

Revenue recognized on contracts for which billings have not yet been presented to customers is included in the Accounts Receivable - contracts
classification on the accompanying Balance Sheets.

Deferred revenue relates to contracts for which customers pay in advance for services to be performed at a future date. The Corporation
recognizes deferred revenue attributable to our maintenance contracts over the related service periods, which run through 2005. Revenue
related to our OpsPlanner offering, including consulting, software subscriptions and technical support, is deferred and recognized over the
appropriate contract service period. These payments are nonrefundable.

Cost Of Revenue

Cost of revenue for service contracts consist primarily of labor, consultant, subcontract, materials, travel expenses and an allocation of indirect
costs attributable to the performance of the contract.

Cost of revenue for repair and maintenance contracts consist primarily of labor, consultant, subcontract, materials, travel expenses and an
allocation of indirect costs attributable to the performance of the contract.

Major Customers

During the years ended December 31, 2004, 2003 and 2002, the Corporation's revenues generated from three major customers, totaled 84%,
92% and 76% of total revenue, respectively. The Corporation's accounts receivable related to these three major customers were 78%, 90 % and
80% of total accounts receivable at the end of the respective years. The Company defines major customers by government agency.

Accounts Receivable

Accounts receivable are attributable to trade receivables in the ordinary course of business. Estimates relating to allowance for doubtful
accounts are based on historical experience, troubled account information and other available information.

Inventory

Inventory consists of replacement printer parts and is stated at the lower of cost or market using the FIFO method.

Property And Equipment

Property and equipment are recorded at the original cost to the Corporation and are depreciated using straight-line methods over established
useful lives of three to seven years. Software is recorded at original cost and depreciated on the straight-line basis over three years. Leasehold
improvements are recorded at original cost and are depreciated on the straight-line basis over the life of the lease.

Advertising Costs

Advertising costs are expensed as incurred. Expenses for fiscal years ending December 31, 2004, 2003 and 2002 were immaterial.

Software Development Costs

Software development costs are included in selling, general and administrative expenses and are expensed as incurred. Statement of Financial
Accounting Standards No. 86, "Accounting for the Cost of Computer Software to be Sold, Leased or Otherwise Marketed" requires the
capitalization of certain software development costs once technological feasibility is established, which the Corporation generally defines as
completion of a working model. Capitalization ceases when the products are available for general release to customers, at which time
amortization of the capitalized costs begins on a straight-line basis over the estimated product life, or on the ratio of current revenues to total
projected product revenues, whichever is greater. As of December 31, 2004, the Corporation had not established technological feasibility for its
software product, and therefore, no costs have been capitalized.

                                                                       F-17
All other research and development costs are expensed as incurred. For the years ended December 31, 2004 and 2003 the Corporation's R&D
expenses totaled $1,078,058 and $559,073, respectively. The Corporation did not incur any R&D expenses during the year ended December
31, 2002.

Income Taxes

Prior to November 5, 2004 the Paradigm Solutions Corporation was treated as an S Corporation, and therefore, did not pay Federal and state
corporate income taxes since the tax attributes of the entity were reported on the stockholders' tax returns. Paradigm Solutions Corporation filed
its income tax returns on the cash basis of accounting, whereby revenue was recognized when received and expenses were recognized when
paid.

Effective November 5, 2005, Paradigm Solutions Corporation revoked its S-Corporation status and therefore is subject to income taxes at the
corporate level. At of the date of revocation, Paradigm Solutions Corporation recorded a deferred income tax liability of approximately
$2,576,000 which relates to the timing differences between book basis and income tax basis at the date of the revocation.

Deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and
their financial reporting amounts at each year end based on enacted tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable earnings. Valuation allowances are established when necessary to reduce deferred tax assets to the
amount more likely than not to be realized.

Net Income Per Share

Basic net income per common share is calculated by dividing the net income by the weighted average number of common shares outstanding
during the period. A diluted earnings per share is calculated using the weighted average number of common shares plus dilutive common stock
equivalents outstanding during the period. Anti-dilutive common stock equivalents are excluded. There were no dilutive common stock
equivalents outstanding during the years ended December 31, 2004, 2003 and 2002.

Reclassification

Certain 2003 and 2002 balances have been reclassified to conform to the 2004 presentation.

2. ACCOUNTS RECEIVABLE

The accounts receivable consist of billed and unbilled amounts under contracts in progress with governmental units, principally the Bureau of
Alcohol, Tobacco, and Firearms, the Office of the Comptroller of the Currency, the U.S. Secret Service, and the Internal Revenue Service. The
components of accounts receivable at December 31, 2004 and 2003 are:
                                                                         2004                     2003
                                                                      -----------              -----------
                                Billed receivables                    $ 6,821,859              $12,727,297
                                Unbilled receivables                    4,657,042                1,767,671
                                                                      -----------              -----------
                                TOTALS                                $11,478,901              $14,494,968
                                                                      ===========              ===========



All receivables are expected to be collected during the next fiscal year and are pledged to the bank as collateral for the line of credit. The
Corporation's unbilled receivables are comprised of contract costs that cover the current service period and are normally billed in the following
month. The Corporation's unbilled at December 31, 2004 does not contain retainage.

3. NOTES RECEIVABLE - STOCKHOLDER

Prior to 2003, the Corporation made advances to its majority stockholder under two loan agreements. The stockholder loans were paid in full
during the year ended December 31, 2003. Interest income earned and received during 2003 and 2002 for the stockholder loans was $1,607 and
$4,039, respectively.

                                                                      F-18
4. INVENTORY

Inventory consists of the following at December 31:
                                                                                    2004             2003
                                                                                 ---------        ---------
                                 Inventory of replacement printer parts          $ 683,026        $ 607,011
                                 Inventory valuation allowance                     (67,006)         (67,006)
                                                                                 ---------        ---------
                                 TOTALS                                          $ 616,020        $ 540,005
                                                                                 =========        =========



5. NOTE PAYABLE - LINE OF CREDIT

The Company has a line of credit arrangement with SunTrust Bank which expired on June 30, 2005. Subsequently, on June 22, 2005 the
company received an extension of the line of credit arrangement through September 30, 2005. Under the terms of the latest agreement, the
Corporation had to maintain: (1) minimum tangible net worth of $2,650,000 beginning on and as of June 30, 2005; (2) debt coverage ratio of
not more then 5.0 to 1.0 beginning on and as of June 30, 2005; (3) minimum quarterly net income of $1.00 for the quarters ending June 30 and
September 30, 2005. The Corporation was in compliance with the line of credit agreement covenants as of June 30, 2005.

The Company terminated its line of credit agreement with SunTrust Bank effective September 1, 2005.

On July 28, 2005, the Company entered into a two year Loan and Security Agreement with Chevy Chase Bank that provides for a revolving
line of credit facility of up to $9 million. The agreement became effective August 4, 2005. The revolving line of credit will be used to borrow
revolving loans for working capital and general corporate purposes. The Company will terminate its existing revolving line of credit facility
with SunTrust once this agreement is activated.

The revolving loans under the Chevy Chase Bank Loan and Security Agreement are secured by a first priority lien on substantially all of the
assets of the Company, excluding intellectual property and real estate. Under the agreement, the line is due on demand and interest is payable
monthly depending on the Corporation's leverage ratio at the LIBOR rate plus the applicable spread which ranges from 2.25% to 3.00%. Under
the terms of the agreement, the Corporation may borrow up to the lesser of $9,000,000 or 90% of eligible U.S. Government receivables plus
80% of eligible commercial receivables plus 75% of the aggregate amount of billable but unbilled accounts to a maximum of $3,000,000. The
Loan and Security Agreement requires that the Company maintain the following covenants and ratios: (1) minimum tangible net worth of
$2,000,000 plus 50% of Company's net income for each fiscal year beginning with fiscal year ending December 31, 2005; (2) debt coverage
ratio of not less than 1.500 to 1.000; (3) maximum leverage ratio of 5.50 to 1.00, which will be decreased to 5.25 to 1.00 by December 31, 2005
and 4.00 to 1.00 by December 31, 2006. All working capital, as it relates to these covenants and ratios requirements will evaluated as of
quarter-end.

The Loan and Security Agreement contains events of default that include among other things, non-payment of principal, interest or fees,
violation of covenants, inaccuracy of representations and warranties, cross default to certain other indebtedness, bankruptcy and insolvency
events, change of control and material judgments. Upon occurrence of an event of default, Chevy Chase Bank is entitled to, among other
things, accelerate all obligations of the Company and sell the Company's assets to satisfy the Company's obligations under the Loan and
Security Agreement.

6. INCOME TAXES

For the years ended December 31, 2004, 2003 and 2002, the components of the provision for income taxes consisted of:
                                                                      2004              2003              2002
                                                                   ----------        ----------        ----------
                        Current:
                          State                                    $    51,380       $   35,125        $       7,529
                        Deferred:
                          Federal                                   1,542,000
                          State                                       341,000
                                                                   ----------        ----------        ----------
                        Totals                                     $1,934,380        $   35,125        $    7,529
                                                                   ==========        ==========        ==========


                                                                       F-19
The provision for income taxes for the years ended December 31, 2004, 2003 and 2002 reflected in the accompanying financial statements
varies from the amount which would have been computed using statutory rates as follows:
                                                                               2004                2003                 2002
                                                                            -----------         -----------          -----------
       Tax computed at the maximum Federal statutory rate                   $ (623,057)         $   158,738          $   814,447
       State income tax, net of Federal benefit                                 (84,662)             21,570              110,669
       Merger related expenses                                                   62,441
       Other permanent differences                                                3,400               17,111                10,725
       Reduction in income taxes due to S-Corporation status                                        (162,294)             (928,312)
       Income tax expense attributable to revocation of
           S-Corporation election                                             2,576,258
                                                                            -----------         -----------          -----------
       PROVISION FOR INCOME TAXES                                           $ 1,934,380         $    35,125          $     7,529
                                                                            ===========         ===========          ===========



A net deferred income tax liability of $1,883,000 at December 31, 2004 results from financial statement income and expenses that are
recognized in different periods for income tax purposes. The components of such temporary differences are as follows:
                                                                                                               2004
                                                                                                           -----------
                     Section 481 adjustment due to conversion from cash basis to accrual
                      basis for income tax reporting                                                       $(2,122,000)
                     Inventory valuation allowance                                                              26,000
                     Accrued vacation and officers' compensation deducted for financial
                      statement reporting purposes but not income tax reporting purposes                      173,000
                     Depreciation and amortization expense reported for income tax
                      purposes different from financial statement amounts                                      (73,000)
                     Deferred rent                                                                              56,000
                     Net operating loss carryforward                                                            57,000
                     Net operating loss carryforward - PDHO                                                  1,502,000
                                                                                                           -----------
                     NET                                                                                      (381,000)
                     LESS: VALUATION ALLOWANCE                                                              (1,502,000)
                                                                                                           -----------
                     NET DEFERRED TAX LIABILITY                                                            $(1,883,000)
                                                                                                           ===========



For income tax purposes, the Paradigm Solutions Corporation has a net operating loss carryforward of approximately $148,000 at December
31, 2004 that, subject to applicable limitation, may be applied against future taxable income. If not utilized, the net operating loss carryforward
will expire in the year 2024.

In addition, Paradigm Holdings, Inc. has operating loss carryforwards of approximately $3,891,000 related to pre-merger activities. The
Internal Revenue Code places certain limitations on the annual amount of net operating loss carryforward which can be utilized when certain
changes in the Corporation's ownership occur. Changes in the Corporation's ownership may limit the use of such carryforward benefits. If not
utilized, these operating loss carryforwards, as limited, will expire in various years beginning in 2020 and through the year 2024.

Prior to November 5, 2004, Paradigm Solution Corporation was taxed as an S-Corporation. The timing differences between book basis and
income tax basis and the related deferred income tax liability that existed as of the date of the revocation of the S election was as follows:
                                     Accounts receivable                                   $ 11,147,000
                                     Prepaid expenses                                         4,374,000
                                     Depreciation                                               191,000
                                     Accounts payable and account expenses                   (6,923,000)
                                     Accrued salaries and related liabilities                (1,980,000)
                                     Deferred rent                                             (135,000)
                                                                                           ------------
                                     Total timing differences                              $ 6,674,000
                                                                                           ============
                                     Deferred income tax liability                         $ 2,576,258
                                                                                           ============


                                                                       F-20
7. LEASES

The Corporation is obligated under an operating lease, as lessee, for its office space which expires in 2011. The lease contains escalation
clauses for 2.5%-3% annual increases in the base monthly rent. In addition, the Corporation leases equipment, as lessee, under noncancelable
operating leases that expire at various times through March 2006.

The following is a schedule, by year, of future minimum rental payments required under the operating leases:
                        Year Ending December 31,            Office Space           Equipment               Total
                        --------------------------          ------------           ----------           ----------
                        2005                                 $ 887,232             $   40,572           $ 927,804
                        2006                                    884,520                34,794              919,314
                        2007                                    543,515                11,535              555,050
                        2008                                    447,132                    --              447,132
                        2009                                    458,313                    --              458,313
                        Thereafter                              668,328                    --              668,328
                                                             ----------            ----------           ----------
                        Total                                $3,889,040            $   86,901           $3,975,941
                                                             ==========            ==========           ==========



Total rent expense for the years ended December 31, 2004, 2003 and 2002 was $945,878, $613,202 and $204,126, respectively.

8. RETIREMENT PLAN

The Corporation maintains a 401(k) profit sharing retirement plan for all eligible employees. Under the plan, employees become eligible to
participate after three months of employment. The annual contribution under this plan is based on employee participation. The participants may
elect to contribute up to 100% of their gross annual earnings limited to amounts specified in Internal Revenue Service Regulations as indexed
for inflation. The Corporation's matching contribution to the Plan is determined annually by the Board of Directors. For the years ended
December 31, 2004, 2003 and 2002, the Corporation contributed an amount equal to 100% of the first 3% of the employees' contributions as a
match. Employees vest 100% in all salary reduction contributions. Rights to benefits provided by the Corporation's matching contributions vest
over a five year period. The Corporation's contributions were $289,681, $224,684 and $148,041 for the years ended December 31, 2004, 2003
and 2002, respectively.

9. COMPENSATION AND EMPLOYMENT AGREEMENTS

During 1999, the Corporation entered into a Section 162 Bonus Plan for the benefit of its executives. This plan is a nonqualified employee
benefit arrangement. The Corporation pays a bonus to its executives who use the bonus to pay the premiums on life insurance policies insuring
his/her life. The policies are owned personally by the executives. The bonus payments are treated as additional compensation to the executives.
The Corporation's bonus payments under this plan were $88,747, $86,628 and $42,623 for the years ended December 31, 2004, 2003 and 2002
respectively.

Effective November 4, 2004, Raymond Huger, Frank Jakovac and Mark Serway and Paradigm Holdings entered into an Employment
Agreement. Pursuant to the agreement, Mr. Huger serves as Chief Executive Officer and Mr. Jakovac serves as Chief Operating Officer. The
agreement has a term of three years and is renewable for additional terms of one (1) year unless either party provides the other with notice at
least ninety (90) days prior to the date the employment term would otherwise renew. Paradigm Holdings can terminate the agreement by
providing at least thirty (30) days' advance written notice to any of the three executives. In the event that Paradigm Holdings terminates the
agreement, other than in connection with a change of control of Paradigm Holdings and other than for cause, Paradigm Holdings is obligated to
continue to pay their base salary and benefits for a period that is the greater of: (i) the remainder of the initial employment term or (ii) twelve
(12) months from the date of termination. Under the agreement, Mr. Huger receives $395,200, Mr. Jakovac receives $365,250 in annual salary
in annual salary, Mr. Serway receives $315,175 in annual salary and all are entitled to participate in any benefit plans provided by Paradigm
Holdings to its executives or employees generally.

On September 28, 2005, Mr. Sawchak and Paradigm Holdings entered into an Employment Agreement with an effective date of September 19,
2005. The agreement has a term of two years and is renewable for additional terms of one (1) year unless either party provides the other with
notice at least ninety (90) days prior to the date the employment term would otherwise renew. Paradigm Holdings can terminate the agreement
by providing at least thirty (30) days' advance written notice to Mr. Sawchak. In the event that Paradigm Holdings terminates the agreement,
other than in connection with a change of control of Paradigm Holdings and other than for cause, Paradigm Holdings is obligated to continue to

                                                                       F-21
pay Mr. Sawchak's base salary and benefits for a period that is the greater of:
(i) the remainder of the initial employment term or (ii) twelve (12) months from the date of termination. In addition, in the event Paradigm
Holdings terminates the agreement, other than in connection with a change of control or for cause, any and all options granted to Mr. Sawchak
will become automatically and immediately vested and exercisable. Under the agreement, Mr. Sawchak receives $200,000 in annual salary and
is entitled to participate in any health insurance, accident insurance, hospitalization insurance, life insurance, pension, or any other similar plan
or benefit provided by Paradigm Holdings to its executives or employees generally, including any stock option plan.

Mark Serway resigned from the company effective August 15, 2005. Mr. Serway received three months of severance as part of his resignation
agreement.

10. CONTRACT STATUS

Provisional Indirect Cost Rates

Billings under cost-based government contracts are calculated using provisional rates which permit recovery of indirect costs and expenses.
These rates are subject to audit on an annual basis by the government agencies' cognizant audit agency. The cost audits will result in the
negotiation and determination of the final indirect cost rates which the Corporation may use for the period(s) audited. The final rates, if
different from the provisionals, may create an additional receivable or liability.

As of December 31, 2004, the Corporation has had no final settlements on indirect rates. The Corporation periodically reviews its cost
estimates and experience rates and adjustments, if needed, are made and reflected in the period in which the estimates are revised. In the
opinion of management, re-determination of any cost-based contracts for the open years will not have any material effect on the Corporation's
financial position or results of operations.

Contract Status

The Corporation has authorized but uncompleted contracts on which work is in progress at December 31, 2004 approximately, as follows:
           Total contract prices of initial contract awards, including
           Total contract prices of initial contract awards, including exercised options and
             approved change orders (modifications)                                                              $ 179,025,000
           Completed to date                                                                                      (144,150,000)
                                                                                                                 -------------
           AUTHORIZED BACKLOG                                                                                    $ 34,875,000
                                                                                                                 =============



The foregoing contracts contain unfunded and unexercised options not reflected in the above amounts of approximately $91,340,000.

11. STOCKHOLDERS EQUITY

Stockholders' equity of the Corporation has been restated retroactively to reflect the equivalent number of shares of common stock received in
the reverse acquisition with Paradigm Holdings, Inc. which occurred on November 3, 2004.

12. PRO FORMA FINANCIAL STATEMENTS

The unaudited pro forma information for the periods set forth below gives effect to the above noted reverse merger as if it had occurred at the
beginning of the period. The pro forma information is presented for informational purposes only and is not necessarily indicative of the results
of operations that actually would have been achieved had the acquisitions been consummated as of that time (unaudited):
                                                                                       2004                  2003
                                                                                   ------------          ------------
                       Revenue                                                     $ 61,756,301          $ 51,216,189
                       Net income (loss)                                             (1,116,476)              292,969
                       Net income (loss) per share, basic and diluted              $       (.06)         $        .02


                                                                        F-22
The unaudited pro forma information for the periods set forth below is based on the operations of Paradigm Solutions Corporation and is
prepared as if the Corporation had been a C Corporation at the beginning of each period. The effective tax rate of 38.6% reflects Federal taxes
at 34% and state taxes, net of the Federal benefit. There are no significant permanent differences in any of the periods presented.
                                                                        2004                    2003              2002
                                                                     (Pro Forma)             (Pro Forma)       (Pro Forma)
                                                                     ------------            ------------      ------------
             Contract revenue                                        $ 61,756,301            $ 51,205,992      $ 37,673,092
             Net income (loss) before income taxes                     (1,832,521)                466,876         2,395,432
             Income tax provision (benefit)                              (707,353)                180,214           924,636
                                                                     ------------            ------------      ------------
             Net income (loss)                                       $ (1,125,168)           $    286,662      $ 1,470,796
                                                                     ============            ============      ============
             Basic and diluted net income (loss) per
               common share                                          $          (0.06)       $        0.02     $        0.08
             Weighted average common shares outstanding                  17,896,709              17,500,000        17,000,000



13. SELECTED QUARTERLY FINANCIAL DATA-UNAUDITED

The following table presents the quarterly results for the Corporation for the years ended December 31, 2004 and 2003:
                                                 1st                 2nd                     3rd                  4th
                    2004                       QUARTER             QUARTER                 QUARTER              QUARTER
                    ----                    ------------         ------------            ------------         ------------
             Revenue                        $ 14,111,171         $ 15,271,579            $ 16,592,604         $ 15,780,947
             Gross margin                      1,584,143            2,039,410               1,995,767            1,592,027
             Net income (loss)              $   (153,321)        $   (143,415)           $   (255,237)        $ (3,214,928)
             Net income (loss) per          $       (0.01)       $          (0.01)       $          (0.01)    $        (0.18)
             share, basic
             diluted

                                                 1st                 2nd                     3rd                  4th
                    2003                       QUARTER             QUARTER                 QUARTER              QUARTER
                    ----                    ------------         ------------            ------------         ------------
             Revenue                        $ 10,599,899         $ 14,287,100            $ 12,281,706         $ 14,037,287
             Gross margin                      1,014,526            1,656,497               1,404,101            1,321,203
             Net income (loss)              $    (62,029)        $    752,044            $   (172,830)        $    (85,434)
             Net income (loss) per
             share, basic and
             diluted                        $          --        $              0.04     $          (0.01)    $           --



The Corporation restated the results of the first, second and third quarters of 2004 to properly recognize revenue on the Department of Treasury
LTMCC contract.

14. REGULATIONS

PDHO owned producing oil and gas properties. The development and operation of oil, gas and other mineral properties are subject to numerous
and extensive regulations by federal and state agencies dealing with, among other subjects, protection of the environment. Management is not
aware of any potential environmental liabilities.

15. LITIGATION

The Company is involved in legal actions arising in the normal course of business. The Company believes the claims are without merit and
intends to vigorously defend its position. In the opinion of management, the outcome of these matters will not have a material adverse effect on
these financial statements.

                                                                         F-23
16. RESTATEMENT

The Company has restated its previously issued financial statements to break-out certain expenses previously reported as Indirect Costs into
Cost of Revenue and Selling, General and Administrative expenses for the years ended December 31, 2004, 2003, and 2002 and to restate
revenue and cost of revenue balances for our federal maintenance contracts and federal service contracts for the year ended December 31,
2004. The effects of the restatement were as follows:
                                                               2004                                2003                 2002
                                                           ------------                       ------------         ------------
            Total contract revenue, as previously reported $ 61,756,301                       $ 51,205,992         $ 37,673,092
              Adjustment to Total Contract Revenue                           --                         --                   --
                                                                   ------------               ------------         ------------
            Total contract revenue, as restated                    $ 61,756,301               $ 51,205,992         $ 37,673,092
            Cost of revenue, as previously reported                $ 46,673,183               $ 38,750,414         $ 28,241,358
               Adjustment to Cost of Revenue                          7,871,771                  7,059,251            4,178,321
                                                                   ------------               ------------         ------------
            Cost of revenue, as restated                           $ 54,544,954               $ 45,809,665         $ 32,419,679
            Gross margin, as previously reported                   $ 15,083,118               $ 12,455,578         $   9,431,734
               Adjustment to Gross Margin                            (7,871,771)                (7,059,251)          (4,178,321)
                                                                   ------------               ------------         ------------
            Gross margin, as restated                              $ 7,211,347                $ 5,396,327          $ 5,253,413
            Other operating expense,
               as previously reported                              $ 16,866,248               $ 12,010,104         $   7,068,265
               Adjustment to Other Operating Expense                 (7,871,771)                (7,059,251)          (4,178,321)
                                                                   ------------               ------------         ------------
            Selling, General & Admin, as restated                  $ 8,994,477                $ 4,950,853          $ 2,889,944
            Income from operations, as previously reported $ (1,783,130)                      $   445,474          $   2,363,469
              Adjustment to Income from Operations                          --                         --                   --
                                                                   ------------               ------------         ------------
            Income from operations, as restated                    $ (1,783,130)              $    445,474         $ 2,363,469



The restatements had no effects on total assets, total liabilities & stock holders' equity, total revenue, net income or earnings-per-share as
previously reported.

                                                         PARADIGM HOLDINGS, INC.

                                     SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

For the years ended December 31, 2004, 2003 and 2002:
                                                           Balance at          Additional
                                                          Beginning of     Charged to Costs                             Balance at End
    Description                                              Period          and Expenses            Deductions           of Period
    --------------------------------------                ------------     ----------------          ----------         --------------
    Deferred tax asset valuation allowance
    December 31, 2002                                     $        --          $         --          $        --          $          --
    December 31, 2003                                              --                    --                   --                     --
    December 31, 2004(1)                                           --              1,502,00                   --              1,502,000
    Allowance for non-salable inventory
    December 31, 2002                                     $        --          $         --          $        --          $         --
    December 31, 2003                                              --                67,006                   --                67,006
    December 31, 2004                                          67,006                    --                   --                67,006



(1) as a result of merger with Paradigm Holdings, Inc.

                                                                        F-24
                                                                    PART II

                                          INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Paradigm Holdings' bylaws provide that we have the power to indemnify any officer or director against damages if such person acted in good
faith and in a manner the person reasonably believed to be in the best interests of our Company. No indemnification may be made (i) if a
person is adjudged liable unless a Court determines that such person is entitled to such indemnification,
(ii) with respect to amounts paid in settlement without court approval or (iii) expenses incurred in defending any action without court approval.

ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth estimated expenses expected to be incurred
                                 Securities and Exchange Commission Registration Fee              $ 2,000
                                 Printing and Engraving Expenses                                  $ 2,500
                                 Accounting Fees and Expenses                                     $15,000
                                 Legal Fees and Expenses                                          $30,000
                                 Miscellaneous                                                    $   500
                                                                                                  -------
                                 TOTAL                                                            $50,000
                                                                                                  =======



ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES

J. Paul Consulting Corporation, Shortline Equity Partners Inc. and Ultimate Investments Corporation subscribed for 10,000,000 shares of
Common Stock (post reverse split of one for eighty-five) for $200,000 cash on August 27, 2004. The transaction was exempt from registration
pursuant to Section 4 (6) of the Securities Act of 1933.

Corporate Organization

On November 3, 2004, Paradigm Holdings, Inc., entered into an Agreement and Plan of Reorganization with Paradigm Solutions Merger Corp.,
a Delaware corporation and wholly-owned subsidiary of Paradigm Holdings (the "Merger Sub"), Paradigm Solutions Corporation, a Maryland
corporation and the shareholders of Paradigm Solutions Corporation. Pursuant to the Agreement and Plan of Reorganization, the Merger Sub
was merged with and into Paradigm Solutions Corporation, the surviving corporation and continues its existence under the laws of the State of
Maryland and is a wholly-owned subsidiary of Paradigm Holdings, Inc. In consideration of the Merger, the Paradigm Solutions Corporation
shareholders exchanged 13,699 shares of common stock of Paradigm Solutions Corporation, which was 100% of the issued and outstanding
capital stock of Paradigm Solutions Corporation, for 17,500,000 shares of common stock of Paradigm Holdings Inc.

With respect to the sale of unregistered securities referenced above, all transactions were exempt from registration pursuant to Section 4(2) of
the Securities Act of 1933 (the "1933 Act"), and Regulation D promulgated under the 1933 Act. In each instance, the purchaser had access to
sufficient information regarding Paradigm Holdings so as to make an informed investment decision. More specifically, Paradigm Holdings had
a reasonable basis to believe that each purchaser was an "accredited investor" as defined in Regulation D of the 1933 Act and otherwise had the
requisite sophistication to make an investment in Paradigm Holdings' common stock.

                                                                       II-1
ITEM 27. INDEX TO EXHIBITS
EXHIBIT NO.         DESCRIPTION                                          LOCATION
-----------------   --------------------------------------------------   -------------------------------------------------
2.1                 Agreement and Plan of Reorganization, dated          Incorporated by reference to Exhibit 99.1 to the
                    November 3, 2004, Incorporated by reference to       Registrant's current report on Form 8-K filed
                    Exhibit 99.1 to Amendment No. 1 to Current Report    with the Commission on November 10, 2004
                    on Form 8-K filed on November 13, 2004, by and
                    among Paradigm Holdings, Inc., a Wyoming
                    corporation, Paradigm Solutions Merger Corp., a
                    Delaware corporation and wholly-owned subsidiary
                    of Paradigm Holdings, Inc., Paradigm Solutions
                    Corporation, a Maryland corporation and the
                    shareholders of Paradigm Solutions Corporation

5.1                 Opinion re: legality                                 To be provided by amendment

10.1                Employment Agreement, effective November 4, 2004     Incorporated by reference to Exhibit 10.1 to the
                    by and between Paradigm Holdings and Raymond Huger   Registrant's Form S-B2 Registration Statement
                                                                         filed with the Commission on February 11, 2005

10.2                Employment Agreement, effective November 4, 2004     Incorporated by reference to Exhibit 10.2 to the
                    by and between Paradigm Holdings and Frank Jakovac   Registrant's Form S-B2 Registration Statement
                                                                         filed with the Commission on February 11, 2005
10.3                Employment Agreement, effective November 4, 2004     Incorporated by reference to Exhibit 10.3 to the
                    by and between Paradigm Holdings and Mark Serway     Registrant's Form S-B2 Registration Statement
                                                                         filed with the Commission on February 11, 2005

10.4                Amended SunTrust Line of Credit Agreement, dated     Incorporated by reference to Exhibit 10.4 to the
                    March 9, 2005                                        Registrant's Annual Report on Form 10-K as filed
                                                                         with the commission on April 11, 2005

10.5                Material Contract - Department of Treasury- IRS      Incorporated by reference to Exhibit 10.5 to the
                    LTMCC                                                Registrant's Annual Report on Form 10-K as filed
                                                                         with the commission on April 11, 2005

10.6                Material Contract - Department of Justice -          Incorporated by reference to Exhibit 10.6 to the
                    Alcohol, Tobacco, Firearms and Explosives            Registrant's Annual Report on Form 10-K as filed
                                                                         with the commission on April 11, 2005

10.7                Material Contract - Housing and Urban Development    Incorporated by reference to Exhibit 10.7 to the
                    - Community Planning and Explosives                  Registrant's Annual Report on Form 10-K as filed
                                                                         with the commission on April 11, 2005

10.8                Material Contract - Department of Homeland           Incorporated by reference to Exhibit 10.8 to the
                    Security - US Secret Service                         Registrant's Annual Report on Form 10-K as filed
                                                                         with the commission on April 11, 2005


10.9                Line of Credit Agreement, dated November 15, 2004    Provided herewith
                    by and between SunTrust Bank and Paradigm
                    Solutions Corporation.


10.10               Loan and Security Agreement, dated July 28, 2005,    Incorporate by reference to Exhibit 10.1 to the
                    Entered into between the Company and Chevy Chase     Registrant's From 8-K as filed with the commission
                    Bank, effective on August 8, 2005.                   on August 8, 2005

10.11               Employment Agreement, effective September 19, 2005   Incorporated by reference to Exhibit 10.1 to the
                    by and between Paradigm Holdings and Richard Sawchak Registrant's Form 8-K as filed with the commission on
                                                                         September 30, 2005

14.1                Code of Ethics                                       Incorporated by reference to Exhibit 14.1 to the
                                                                         Registrant's Form S-B2 Registration Statement
                                                                         filed with the Commission on February 11, 2005
21.0                List of Subsidiaries                                 Provided herewith


23.1                Consent of Aronson & Company                         Provided herewith

23.2                Consent of ________                                  To be provided by amendment




                                                                  II-2
Item 28. Undertakings

The undersigned registrant hereby undertakes:

(1) To file, during any period in which it offers or sells securities, a post-effective amendment to this registration statement to:

(i) Include any prospectus required by Sections 10(a) (3) of the Securities Act of 1933 (the "Act");

(ii) Reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration
Statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered
would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in
the effective Registration Statement;

(iii) Include any additional or changed material information on the plan of distribution;

(2) That, for the purpose of determining any liability under the Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the bona
fide offering thereof.

(3) To remove from registration by means of a post-effective amendment any of the securities that remains unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the Act may be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than the payment by the small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business issuer in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the securities being registered, the small business issuer will, unless
in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

                                                                         II-3
                                                                 SIGNATURES

In accordance with the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on this Form S-1 and authorized this registration statement to be signed on our behalf by the undersigned, in
Rockville, Maryland, October 5, 2005.

                                                        PARADIGM HOLDINGS, INC.
                                                By:    /s/ Raymond Huger
                                                       ----------------------------------
                                                Name: Raymond Huger
                                                Title: Chief Executive Officer,
                                                       Chairman of the Board of Directors

                                                By:    /s/ Richard Sawchak
                                                       ----------------------------------
                                                Name: Richard Sawchak
                                                Title: Chief Financial Officer,
                                                       Chief Accounting Officer



KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Raymond Huger his
true and lawful attorney-in-fact and agent, with full power of substitution and revocation, for him and in his name, place and stead, in any and
all capacities (until revoked in writing), to sign any and all amendments (including post-effective amendments) to this Registration Statement
and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to
be done as fully for all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or is substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
                        SIGNATURE                        TITLE                                        DATE
                        -------------------------        -----------------------------------          -------------

                        /s/ Raymond Huger                Chief Executive Officer and               October 5, 2005
                        -------------------------        Chairman of the Board of Directors
                        Raymond Huger

                        /s/ Frank Jakovac                President, Chief Operations Officer       October 5, 2005
                        -------------------------        and Director
                        Frank Jakovac

                        /s/ Richard Sawchak              Vice President, Chief Financial           October 5, 2005
                        -------------------------        Officer
                        Richard Sawchak

                        /s/ Frank Ryan                   Director                                   October 5, 2005
                        -------------------------
                        Frank Ryan

                        /s/ John A. Moore                Director                                  October 5, 2005
                        -------------------------
                        John A. Moore

                        /s/ Edwin Mac Avery              Director                                  October 5, 2005
                        -------------------------
                        Edwin Mac Avery



                                                                        II-4
EXHIBIT 21

                                   LIST OF SUBSIDIARIES

Paradigm Solutions Corporation

Paradigm Solutions International
EXHIBIT 23.1

                                                       Independent Auditor's Consent

Board of Directors
Paradigm Holdings, Inc.
Rockville, Maryland

We hereby consent to the inclusion of our report dated February 11, 2005, except for notes 5 and 16, as to which the dates were July 25, 2005
and September 28, 2005, respectively, on the audited consolidated balance sheets of Paradigm Holdings, Inc. (formerly Paradigm Solutions
Corporation) as of December 31, 2004 and 2003 and the results of their operations and their cash flows for each of the three years in the period
ended December 31, 2004 in the SEC Form S-1 Amendment No. 6 to be filed by Paradigm Holdings, Inc.

We also consent to the reference to us under the heading "Experts" in such Prospectus.
                                                           /s/ Aronson & Company
                                                           ARONSON & COMPANY
                                                           Rockville, Maryland
                                                           October 5, 2005